February 4, 2013 2:48 pm

Airlines step up fight over passenger duty

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Dropping air passenger duty would provide a sizeable lift to the UK economy, the aviation industry said, as it stepped up its campaign against the tax ahead of the chancellor’s Budget next month.

A report commissioned by the country’s four biggest airlines said the economic benefit of abolishing the tax would add 0.46 per cent to gross domestic product in its first year. The boost from the disappearance of the tax, which adds £13 to every short-haul economy class ticket and £65 to business and first class seats, would more than make up for lost Treasury revenues, it said.

But a Treasury spokesperson said APD, which is forecast to bring in £2.9bn this year, makes an “essential contribution” towards helping meet the government’s deficit reduction plans.

“We do not recognise the figures in this report or agree with the assumptions behind it,” the Treasury said.

PwC, which undertook the study, estimated that increased tourism and private investment would lead to a short-term boost while job creation and higher productivity would produce “a small but permanent GDP gain”.

The scale of the uplift would fall to a 0.11 per cent impact by years nine and 10, but the absence of the tax would continue to reap benefits – such as lower benefits payments and higher corporation tax receipts – that would outweigh the costs, PwC argues.

“A lot of this is about the ability to connect to other markets,” said Michael Burns, head of aviation at the consultancy. “We know the levels of APD have had an impact on travel, especially long-haul travel.”

Paul Moore, a spokesman for easyJet, one of the airlines that commissioned the study – alongside British Airways, Ryanair and Virgin Atlantic – argued APD was on the same level as corporation tax in terms of its leverage on economic activity: “If the chancellor is looking to stimulate growth, APD is something to consider.”

The airlines have joined their lobbying efforts over the tax, and are calling for scrapping it entirely rather than tweaking it. But the research also examined the case for less drastic measures, and found that the deeper the cut to APD, the greater the benefit to the economy.

It suggested reducing APD by £1 would produce a bigger boost to GDP than the same reduction in VAT, income tax, national insurance or corporation tax. Only fuel duty offered more leverage, according to PwC.

But the report also found that by encouraging foreign travel by UK residents, abolishing APD would mean some parts of the economy would suffer even if the overall impact on GDP was positive.

“The outflow [of UK consumers’ pounds] is partially offset by expenditure from foreign inbound tourists . . . [but they] tend to purchase a more limited range of lower value-added goods and services than domestic consumers,” the study said.

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