A recent debate in Parliament may have seen unanimous cross-party support for a review of the tax, but the industry ought not to get its hopes up, warns Ian Taylor
Anyone hoping for a shift in government policy on Air Passenger Duty (APD) in the Chancellor’s Autumn Statement on December 5 will surely be disappointed.
All signs point to no change, with an inflation-linked rise in APD already in train for next April.
It’s nigh on impossible to see George Osborne changing his mind – the main reason being the state of the UK economy.
Britain may technically have returned to growth in the third quarter of the year but the economy is, to all intents and purposes, flat.
David Cameron greeted the announcement of a 1% rise in third quarter GDP with the words “the good news will keep on coming”. But the Financial Times noted last week: “The good news has not kept coming.
“Surveys of the manufacturing, construction and service sectors have pointed to worsening business conditions … the retailers’ trade association said September was a ‘false dawn’.”
Bank of England governor Mervyn King reiterated this yesterday when he described the recovery as “slow and protracted” and announced the Bank had halved its growth forecast for next year.
It is now 2015 before the Bank expects us to be back to where we were in 2008. Who knows? This point continues to recede like the horizon as we move towards it.
Coalition leaders have reportedly been in “urgent talks” on how to handle the government’s failure to meet its public debt target.
One choice under discussion, according to the Financial Times, is “to impose further tax rises and spending cuts”.
Cuts in each of the next two years are already scheduled to be about 33% greater than this year.
At the same time Osborne faces a revolt in his own party over a 3p-per-litre rise in duty on petrol due in January.
This has already been delayed, but Tory MPs want a further delay worth £350 million to the Treasury. Osborne may agree, further cutting his room for manoeuvre.
This is the context in which the Treasury will view APD. It was spelt out in Parliament in a debate at the start of November.
The industry’s Fair Tax on Flying coalition did spectacularly well to gain MPs’ support for the Parliamentary motion and the debate itself showed unanimous backing for the demand for a Treasury study of APD’s full economic impact.
It should be said some MPs displayed a fair degree of well-briefed ignorance: one suggested APD was a tax “to get into the country” (it’s to get out), another that Heathrow “used to be the premier airport in Europe” (it still is and, for international passengers, the premier airport in the world).
A third argued Air Asia X had dropped plans to fly from Manchester in favour of Paris because of APD, without pointing out the airline withdrew from Paris (as it did from Gatwick) in March this year (and not because of APD).
There was the odd telling moment. One MP began by apologising “for the repetitive nature of the comments I’m about to make” which speaks for itself.
Another observed that “at the heart of this debate there is an absence of evidence”, which is the reason for demanding the review.
Andy Slaughter, Labour MP for Hammersmith in London, made the point that “the 200,000 UK residents who have written to the Chancellor have not been treated terribly well.
“I have seen the standard replies by the Treasury and by Conservative MPs and am dismayed by them. They do not deal with the issues at all.”
Over the two and a half hours of the debate no one spoke in favour of APD or sought to defend it.
Then economic secretary to the Treasury Sajid Javid, the minister responsible for APD, got up.
Javid told MPs: “The government will take note of Parliament’s view.”
He made a routine defence of the government’s record: “This government has limited the rise in APD to inflation. We have sought to provide airlines and passengers with clarity on future rates.”
He offered the odd argument in defence of the tax itself: “I remind members that international aviation is generally not subject to tax on fuel and, in contrast to many other countries, no VAT is levied on international or domestic flights in the UK.”
However, the core of his reply was this: “Let us be frank … APD is forecast to raise about £2.9 billion in 2013-14.
“Those revenues will be important … We have no plans for further reform [of APD] … We have no plans for further consultation … APD makes an essential contribution to the public finances.”