Image via Shutterstock
Scrapping Air Passenger Duty (APD) could boost economic growth, create up to 61,000 jobs, and pay for itself through higher revenues from other taxes.
The findings come in updated independent analysis of the economic impact of aviation tax by accountancy firm PwC.
UK airlines today welcomed the findings, which suggest that the tax currently suppresses demand for flights by 10%.
With the summer Budget less than a month away, a key finding in the study that APD abolition could raise more than £350 million net in extra tax receipts in each year up to 2020 is highlighted as chancellor George Osborne considers measures to boost the economy, productivity and trade, without losing tax revenue.
The airline industry has long argued that APD is a tax on trade, productivity and investment, as well as family holidays.
The updated analysis from PwC’s 2013 report takes into account APD policy changes since 2013 and evidence presented by the Airports Commission in its December 2013 interim report.
The Airports Commission studied the relationship between the aviation sector and GDP as part of its assessment for the need for new runway capacity in the south-east of England.
Separately, it found a stronger link than in the evidence used by PwC in the modelling for the 2013 APD study.
By factoring in this new evidence the revised APD analysis suggests that the benefits of abolition had been underestimated and are even greater than previously thought.
The economic model has been updated to reflect this new evidence and has produced a new set of results suggesting that:
- APD abolition could boost UK GDP by around 0.5% in the first year, with continuing positive benefits up to 2020;
- the economy could be 1.7% bigger by 2020 than would be the case if APD were to remain unchanged;
- the increased economic output associated with abolition could lead to the creation of 61,000 jobs by 2020 – 1,000 more than the 2013 report found despite recent policy changes; and
- more tax revenue would be raised from other taxes than is lost from abolition, with a net £570m in extra tax receipts in the first fiscal year, and positive benefits through to 2020 that could add up to as much as £2 billion additional tax receipts in total compared with the status quo.
The modelling suggests that the boost to GDP from abolition would come from three main sources:
- airline investment to offer new routes and maximise existing capacity to meet an estimated 10% increase in the demand for flights;
- higher productivity, international trade and investment from increased business and leisure travel; and
- a 7% net increase in foreign inbound tourism by 2020 – equating to approximately 200,000 extra inbound tourist arrivals in the UK.
British Air Transport Association (Bata) chief executive Nathan Stower, said: “Next month’s Budget must challenge the existing orthodoxy on Air Passenger Duty. The UK is an island trading nation yet we have the highest tax on flying in the world.
“This independent economic analysis, using methodology used in studies for the Airports Commission, suggests that the question for the chancellor is not ‘can we afford to abolish Air Passenger Duty?’ it’s ‘can we afford not to?’”
International Airlines Group chief executive, Willie Walsh, said: “APD is an out of control tax. The government just keeps piling on increases.
“Despite compelling evidence, the UK government continues to cling to the notion that short-term gains in taxation trump long-term gains in economic growth and productivity. It is shortsighted and continues to erode the UK’s standing in a global economy.”
Craig Kreeger, his counterpart at Virgin Atlantic, said: “APD is a tax on UK exporters, productivity and growth.
“While we welcomed the recent changes to APD, it is frustrating that it has been left to research from the private sector to conduct a detailed economic analysis of its impact.
“It is time for the UK government to recognise, fully review, and take action to reduce the highest travel tax burden imposed by any nation.”
Carolyn McCall, chief executive of easyJet, said: “Abolishing Air Passenger Duty would boost the UK economy by supporting tourism, investment and business activity.
“There is a real opportunity with this for the UK to be more competitive. The government has already removed the tax for children and we hope that it will abolish this tax completely, helping to make travel more affordable for all passengers.”
PwC was commissioned by British Airways, easyJet, Ryanair and Virgin Atlantic two years ago to conduct an independent assessment of the abolition of APD.
The firm was asked to update this study following publication of new supporting evidence and subsequent public policy changes.