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Smith HenryHenry Smith is Member of Parliament for Crawley.

At
the Autumn Statement in December the Chancellor re-affirmed the Government’s
economic strategy – to focus on reducing the deficit, restoring stability,
rebalancing the economy and equipping the UK to compete in the global race.
With over one million new private sector jobs created and the deficit reduced
by a quarter since the General Election, it is clear that Great Britain is on
the right track.

At
the same time both the Chancellor and the Prime Minister have acknowledged that
restoring growth is proving to be an even tougher challenge than expected. The
damage to the UK economy caused by the previous Government was deeper than
anyone predicted and persistent problems in the Eurozone continue to cause us
difficulties.

Businesses
create growth, not governments, but governments can create the right fiscal and
regulatory environment that allows business to flourish. So as the Budget
approaches, it is vital that we consider what more can be done to increase
competitiveness and encourage businesses to trade, invest and grow, whilst
maintaining discipline in the public finances.

I
believe that tackling the severe inherited levels of Air Passenger Duty (APD)
offers a unique opportunity to increase UK competitiveness, reduce the cost of
business travel to stimulate trade and investment, and help hard-working
families who want to visit family or friends or take a well-earned
holiday.


The
last Labour Government inherited a very modest APD and over time significantly
increased the rates, particularly for long-haul travel. The Chancellor
recognised this problem by delivering a temporary one year freeze and limiting
rate increases to inflation since taking office. While this action has been
very welcome, the time has now come to undo Labour’s damage.

Most
countries do not tax international air travel at all, but of the handful of
countries that do, the UK has the highest tax (more than double the next
highest in Europe levied by Germany). Having the world’s highest air passenger
tax is not a sustainable position for an island nation seeking to increase
international trade and attract millions of new inbound visitors.

Last
year over 200,000 people contacted their Member of Parliament to complain about
APD, but public concern has not, until now, been supported by credible
evidence. A new report by PwC provides this missing analysis. The report’s key
findings make for interesting reading.

  • APD is the highest tax of its
    type in the world by some considerable margin;
  • UK businesses in aggregate pay
    around £500 million in APD each year;
  • APD is a highly distortive tax
    on business; and
  • abolishing APD could boost UK
    GDP by 0.45% in the first year (with continuing benefits through to
    2020),  increase investment and exports (including earnings from
    foreign tourism), and pay for itself, with increased business growth
    leading to higher tax receipts from other sources, outweighing the lost
    APD revenue.

The
report acknowledges that while it is uncommon, but neither implausible nor
unprecedented for tax cuts to pay for themselves. It should not surprise
Conservatives that lower taxes can lead to higher tax revenues.

The
Chancellor is rightly protective of the fiscal credibility he has gained and I
am the last person who would want that reputation to be put at risk. This
analysis strongly suggests that abolishing APD would be both radical and
prudent. It would be a relatively small (£3bn) pro-growth tax cut that would
pay for itself through increased tax revenue from other sources. In the pursuit
of growth, it would signal clearly to the world that Britain is well and truly
open for business and ready to welcome overseas visitors.

The politics of abolition are also attractive.
In one move we would cut the cost of an overseas family holiday, reduce a
significant burden on business and expose Ed Balls and Labour who stealthily
increased this tax in the last years of the Labour Government. I would relish
taking that message to the doorstep in 2015.

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