LONDON, Jun 12 2015 – A new report into the impact of Air Passenger Duty shows its abolition could be more beneficial than previously thought.
The independent analysis, carried out by PwC on behalf of four UK airlines, shows that getting rid of APD could generate higher taxes from other sources, resulting in a net gain of £570 million in the first year alone.
Caribbean countries have been fighting for the APD to be reformed. They say due to the way the tax is calculated, by measuring the distance from London to the destination’s capital city, those flying to the Caribbean currently contribute more in APD than those flying to California or Hawaii.
But despite ongoing protests from Caribbean governments, and months of discussions between representatives from the islands and the Treasury, the British government has refused to yield over the issue.
UK airlines have welcomed the findings, which suggest that the air tax suppresses demand for flights by 10 percent.
The updated study, which follows an earlier investigation by PwC in 2013, takes into account changes to APD in the past two years and evidence presented by the Airports Commission in their December 2013 report.
The report’s authors said: “As part of their assessment for the need for new runway capacity in the South East of England, the Airports Commission assessed the relationship between the aviation sector and GDP. Separately, it found a stronger link than in the evidence used by PwC in their 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 report claimed the boost to GDP would come from airlines investing in new routes and maximising existing capacity to meet an estimated 10 percent increase in demand, more business and leisure travel and a 7 percent net increase in foreign visitors to the UK by 2020.
Airlines are hoping the report will persuade the Chancellor George Osborne to abolish APD in his Budget next month.
Nathan Stower, chief executive of the British Air Transport Association, 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?'”
