Comment: Next phase of APD battle won’t be straightforward

The next phase of the campaign against Air Passenger Duty (APD) can’t just be more of the same.

The Treasury has listened but turned a deaf ear. It needs the revenue. It believes the industry can absorb the tax (or it won’t get the revenue).

It considers corporate travel will carry on regardless and the majority of voters won’t notice. It believes overseas visitors to the UK will not be deterred by APD more than by other factors (the state of economies, the exchange rate of sterling, the price of oil).

The cost to destinations – particularly the Caribbean – appears to have counted for little apart from sympathy, but remains important.

Four points seem worth considering if the sector is to do better in the next phase.

One, the industry shot itself in the foot by issuing counter claims and arguments. For example, Virgin Atlantic argued for increasing the tax on short-haul flights but to reduce it on long haul; easyJet argued short-haul passengers were subsidising the APD of long-haul passengers. Regional carriers and airports argued for a ‘levy’ on southeast airports to allow for an APD reduction in the regions.

This is not likely to stop, but needs bringing under control. The Axe the Tax group of airlines (BA, Virgin, easyJet, Ryanair) will go some way to doing that (and the Treasury has put the ‘short-haul versus long-haul’ argument to bed by making clear it won’t penalise short-haul passengers more heavily. After all, there are a lot of them.)

Two, most roads seem to lead to making the economic case against APD – demonstrating the tax is hitting traffic, hurting the economy and costing jobs. This appears to be common sense, but will be tricky to demonstrate compellingly. There are too many other factors contributing towards these effects.

Three, the industry has argued consistently that it faces ‘a double tax’ from January with the cost of the European emissions trading scheme (ETS). The US Business Travel Coalition was the latest to trot out this line, arguing: “When the EU emissions trading system kicks in … the cumulative negative impact on the UK will be orders of magnitude more grim.” Sorry, it won’t.

It’s reasonable to want the cost of ETS offset against APD. The government neatly sidestepped this early on by declaring APD purely “revenue-raising”, but the point here is that the industry overstates its case and thereby loses the impact.

Emissions trading is not a tax – it will raise a small amount for the Treasury, a fraction of the APD revenue. The costs will largely go on carbon credits (to other companies or ‘market’ traders). These can be expected to grow over time, but should not amount to much in the first years. According to easyJet, the impact “should be below €2 (£1.72) each way on long-haul fares”.

By harping on about ETS the industry risks putting itself on the wrong side of a divide that has polar bears and David Attenborough on the other side. It is not helpful.

Fourth, I suspect the Treasury has had enough of the APD-bashing press releases. The department certainly appears combative. I’ve had a couple of calls to dispute industry claims.

For example, Virgin Atlantic made the point – following announcement of the rises next April – that passengers who have already paid to fly after April 1 will have to pay more. Virgin called it “retrospective”.

No, says the Treasury: “It’s not retrospective, APD is payable at the time you take the flight.” What is more: “The rise was well trailed … the rises are smaller than the indicative rises given … APD didn’t go up this year … the industry was told it would be a double inflation rise … a small proportion of people book so many months in advance … [and] it’s up to airlines to price APD into fares.”

A final thought: might it weaken the case against a £13 APD rate on short-haul flights that Ryanair now levies charges of up to £100 for checked baggage? I know no one needs to pay it, but some do or Ryanair wouldn’t make the profits it does.