Budget Resolutions and Economic Situation — Amendment of the Law

Part of the debate – in the House of Commons at 6:56 pm on 25th March 2013.

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Photo of Henry Smith Henry Smith Conservative, Crawley 6:56 pm, 25th March 2013

The Budget reaffirmed the Government’s economic strategy of focusing on reducing the deficit, restoring stability, rebalancing the economy and equipping the UK to compete globally. With over 1.25 million new private sector jobs created and the deficit reduced by a third since the general election, Great Britain is clearly on the right course.

There is one issue, however, that I would have liked my right hon. Friend the Chancellor of the Exchequer to address—tackling the severe inherited levels of air passenger duty. That was a missed opportunity to boost UK competitiveness further still, to reduce the cost of business travel to stimulate trade and investment, and to help hard-working families who want to visit their friends or family or to take a well-earned family holiday.

The previous Labour Government inherited a very modest level of APD and, over time, significantly increased the rates, particularly for long-haul travel. Since taking office, my right hon. Friend has recognised this problem by delivering a temporary one-year freeze and limiting increases to the level of inflation. While this action has been very welcome, we should be going further to undo Labour’s damage. Most countries do not charge an international air travel tax at all, but of the handful that do, the UK has by far the highest such tax—more than double that of the next highest charging country, which is Germany. Levying the world’s highest air passenger tax is not a sustainable position for an island nation seeking to increase international trade and to attract millions of new in-bound visitors.

There is significant public concern about APD. Hon. Members have received hundreds of e-mails from constituents, and over 200,000 people have contacted their Member of Parliament to say that APD rates are too high. However, public concern has not, until now, been supported by detailed and credible evidence. Four airlines, including Virgin Atlantic, which is headquartered in my constituency, and EasyJet, the majority of whose services go from London Gatwick airport, commissioned an independent report by PriceWaterhouseCoopers that provides that missing analysis. It makes interesting reading with regard to the nature of APD and its role in the UK economy. It finds that APD is the highest tax of its type in the world by a considerable margin; that it is a highly distortive tax that is at least as damaging to the economy—and probably more so on a pound for pound basis—than corporation tax, and second only to fuel duty among major UK taxes; and that UK businesses in aggregate pay about £500 million in APD each year.

The report’s main analysis relates to the impact on the economy and tax revenues if APD were to be abolished. The report’s modelling suggests that by abolishing APD the UK could boost its gross domestic product by 0.45% in the first year, with continuing benefits through to 2020. Abolishing APD would also increase investment by 6% and exports, including earnings from foreign tourism, by 5% between 2013 and 2015. Abolishing APD would pay for itself, with increased business growth leading to higher tax receipts from other sources, outweighing the lost APD revenue, and it would lead to the creation of up to 60,000 jobs between now and 2020. The report acknowledges that it is uncommon but not unprecedented for tax cuts to pay for themselves.

Even though this has been a step too far for this Budget, I hope that I have made the case that abolishing APD would have been a significant contributor to the UK economy and the Exchequer and to boosting growth in what was otherwise an excellent Budget for hard-working families and businesses in my constituency and throughout the country.

Annotations

John Byng
Posted on 5 May 2013 1:01 am (Report this annotation)

It is disappointing that Henry Smith, who takes a sensible line on many things, should describe a report on APD paid for by airlines as an independent report. He also fails to recognise that aviation enjoys tax concessions (on fuel duty and VAT) that heavily outweigh APD. It is hard working families and businesses that have to make up the shortfall (about £8 billion a year in the UK).
This distortion in the economy is holding us back and so APD should be gradually increased relative to GDP. The airlines are taking us for a ride in every sense but the economy and the environment are paying the price.