Sir Graham Brady is Chairman of the 1922 Committee and MP for Altrincham and Sale West.
There are many pressures on the Chancellor for his next Budget. He must find the £20 billion that has been allocated to the NHS up to 2023. He has to make sure that we remain competitive, that our public finances are in good stead and that our national debt falls. As Conservatives, we expect some good news on keeping taxes down to help hard pressed families. And to top it all off, this is the last Budget before March next year.
Quite a few challenges, it seems, but not many opportunities. There is one, though, that stands out. In the upcoming budget, the Chancellor has the opportunity to show that Britain is both Brexit-ready and open for business by dealing – at long last – with Air Passenger Duty, the UK’s punitive tax on air travel.
Our world-class aviation industry has a key role to play in our post-Brexit economy, and yet APD in the UK is the highest tax of its kind in Europe, and amongst the highest in the world. It adds more than £78 to all long-haul adult tickets, but many neighbouring economies have no such tax at all. Germany has the next highest in Europe, but it is dramatically less than UK levels.
Our neighbours in the Republic of Ireland have scrapped similar taxes altogether – and have subsequently enjoyed a boom in new routes. For example, huge numbers of Brits now travel to the United States via short flights to Dublin airport, just to avoid Britain’s eye-watering APD.
This is crystal clear in Northern Ireland, where the tourism industry has been particularly affected. Travelling from Belfast to Dublin airport is no different from travelling from Manchester to Birmingham. When customers are considering where to fly from and how much it will cost, the economic attractiveness of flying from Dublin is incredibly strong.
Of course, this becomes all important in the context of Brexit. It makes no economic or political sense for us to place such a heavy and unnecessary burden on airlines seeking to establish new routes from the UK, and drive that business across the Irish border. Whatever the outcome of the Brexit process, we should be doing everything we can to be competing on the international stage. APD stands in stark contrast to the Government’s aims of ensuring Britain remains one of the best places in the world in which to invest in and with which to trade.
For an example, let us look at the benefits from the new Hainan Airlines service from Manchester Airport to China. UK export values from the airport have increased 265 per cent to £200 milliom a month; 40 per cent more people in the North are now travelling to China than prior to the commencement of the route; there are many new Chinese students at Manchester University and inward investment in Manchester has doubled. The benefits of more long-haul flights to regional airports across the UK are plain to see.
So for us to take advantage of the new trading relationships on offer post-Brexit, we Conservatives should champion tearing down anti-growth taxes like APD. Indeed, the higher rates of the tax were abolished in 2015 and the code simplified – but more now needs to be done. British business wants to be part of an outward-facing, export-led surge in growth post-Brexit, but this Budget needs to give them the space to do it.
For example, a recent report by Airlines UK shows that APD has led to the UK missing out on over 60 new routes, including long-haul connections to emerging markets. And another report found that in the past 12 months Britain was the only country in the EU to experience a reduction in direct connectivity. We cannot afford for the UK to have fewer direct connections to South Korea, Japan, Brazil and China than Germany or France. This is the real-world impact of APD. It holds back our economic growth and limits choice for consumers.
Once upon a time, proponents of APD clung to environmental arguments to justify its impact. But as the TaxPayers’ Alliance has shown, flights within the EEA are covered by the EU emissions trading scheme (which Ministers have committed to keep us in until 2020). This means that any reduction in emissions from less air travel would be replaced by another emitter buying the freed-up permit. And the duty takes no regard of the fuel efficiency of the aircraft.
The call to reduce APD is backed by colleagues in Parliament across the political divide, because we all realise that Britain’s future depends on the very trading relationships that only aviation can help deliver. Put simply, Air Passenger Duty remains a tax on trade. Like many tax cuts, slashing APD will also boost our economy and allow businesses to create new, modern jobs in an exciting growth sector. Indeed, research conducted by PwC shows that we would see an increase in tax receipts, a rise in GDP and the creation of thousands of new jobs, all by cutting APD.
So if the Chancellor needs a popular tax cut that can raise revenue and get Britain ready for Brexit, APD should be his answer. Now is the time for the Chancellor to decisively deal with this tax on trade, to cut air fares for our constituents and allow the industry to develop the routes that will help our economy prosper.
After this tricky Budget, the Chancellor may want to take his family away for Christmas for a well-earned break. What better way to prepare, than to cut APD?