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George Osborne’s silence on APD in yesterday’s Budget stemmed from a game of political chicken with the SNP. Abta head of public affairs Stephen D’Alfonso explains
When George Osborne stood up yesterday in the House of Commons to deliver his eighth Budget as Chancellor, the task wasn’t an easy one.
Since December’s Autumn Statement, growth has been revised down by 0.4%, with lower than expected forecasts continuing through to the end of the Parliament. At the same time, borrowing is set to rise by £400 million this year (to £83.7 billion).
Against this backdrop, the Chancellor tried his best to weave a narrative of the UK as a growing and dynamic economy.
With a swathe of announcements on tax, infrastructure spending and devolution, there were quite a few announcements of interest to travel and tourism businesses.
However, the Budget was conspicuously quiet on Air Passenger Duty (APD).
Tax played an important part in this Budget, with cuts to business rates an obvious centrepiece.
From April 2017, small businesses in properties with a rental value of £12,000 or less will pay no business rates, with 600,000 small businesses standing to benefit, according to Treasury figures.
Large travel businesses stand to benefit as well, with the corporation tax rate falling to 17% by 2020.
On rail infrastructure, significant investment has been announced to link Manchester and Leeds with High Speed 3, and the Government reiterated its commitment to Crossrail 2 linking northeast London with the southwest of the city.
It is particularly encouraging to see that the recommendations of the newly established National Infrastructure Commission (NIC) are being adopted by the Government. The NIC is the industry’s best chance of removing short-term political wrangling from long term planning decisions and hopefully this is a trend that will continue.
On devolution, East Anglia, the West of England, Greater Lincolnshire and Liverpool will all be given devolved powers, notably in local transport.
There is a real opportunity that tourism coordination in these regions could benefit greatly from a joined-up approach at this sub-national level, and tourism businesses ought to be putting forward a strong case that tourism should feature in their work plans.
While the Chancellor was silent on APD in his statement, buried deep in the back pages of the Budget book was the unwelcome announcement that APD on long-haul flights would rise by inflation.
Furthermore, no decision has yet been made on mitigating the impact of devolved APD in other parts of the UK. The anticipated announcement on devolving APD to Wales was also absent.
This is not entirely surprising.
The Chancellor is clearly playing a game of political chicken with the SNP Government in Holyrood, hoping that he can call their bluff and that they won’t cut APD despite their high-profile commitment to halving the duty.
The trouble with this game is that the SNP has shown no sign of wavering on its commitment to an APD cut.
Considering that air routes and investment decisions by airlines are made years in advance, by the time the Scottish Government implements the cut, it will be too late for the Chancellor to mitigate the fall-out in those parts of the country that will most likely be impacted (the northeast of England, for example).
APD is the highest tax of its kind in Europe, by some way. It is very disappointing that the Chancellor used yesterday’s Budget to raise Band B APD by inflation rather than to address the uncompetitive level of APD overall.
With May’s elections just around the corner, the political nature of the discussion tied the Chancellor’s hands to some extent. However, the industry needs urgent action from the Treasury to bring APD down across the whole of the country to ensure a competitive, fair tax.