Comment: APD is a tax on economic activity

In his Budget statement in March 2011 the Chancellor made some important observations. “Our country has to compete if we are to create growth and jobs. Britain has fallen behind many others in the world in the last decade. We’ve fallen from 4th to 12th place in the global competitiveness league.”

Since that statement economic conditions have deteriorated and the country’s growth forecasts are being scaled back significantly.

The Chancellor has talked about creating ‘the foundations for growth’, yet he seems blind to the aviation industry’s potential for contributing toward the nation’s economic recovery.

He has hit aviation yet again with a rise in Air Passenger Duty twice the level of inflation – and APD is already the highest aviation tax anywhere in the world.

Of the 27 EU countries, 22 have no equivalent flight tax at all. In the Netherlands, a tax was introduced – then scrapped a year later after it became clear that for every euro raised in revenue, the country lost four euros because of the tax’s effect in depressing economic activity.

In response to the latest increase in APD, British Airways announced that it will postpone bringing an extra Boeing 747 into service next summer and review the use of two others. These fresh tax hikes make it impossible for BA to proceed with its original recruitment plans and 400 new jobs in BA have now been lost. It will also have consequences for the airline’s suppliers in Wales, Northern Ireland and England, undermining efforts to sustain employment levels.

In that March budget statement the Chancellor declared: “Let it be heard clearly around the world – from Shanghai to Seattle, and from Stuttgart to Sao Paolo: Britain is open for Business.”

However, his actions on APD send out a clear and unambiguous message to the world that Britain is a difficult and expensive place to do business.

APD is a tax on economic activity. This extraordinary level of taxation is undermining the British aviation industry and is damaging the UK economy. It deters people from visiting the UK and spending money at our hotels, restaurants and attractions. It chokes off jobs in these industries as well as within airlines and airports, and aviation’s entire supply chain.

Last year, the UK suffered the highest passenger traffic loss in Europe in absolute terms with 7.4 million fewer passengers, a 3.3 per cent reduction, at a time when passenger traffic in the rest of Europe grew by 4.6 per cent or more than 66 million.

This was the third consecutive year of decline and traffic has now fallen to levels lower than in 2004.

Aviation is a fiercely competitive business and I would normally never agree with the CEOs of Virgin Atlantic, easyJet or Ryanair. But on this issue, we have joined together to urge George Osborne to commission an independent study into the impact of APD on the economy as a whole.

I have no doubt that any such study would conclude the UK would be better off if APD was removed completely. It is time to axe the tax.

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