Further Reading
Member News
By Brian Donohoe MP - 29th August 2012
Capacity constraints and high taxation on aviation are putting the UK economy at a competitive disadvantage, writes Brian Donohoe MP.
Today, the All Party Parliamentary Aviation Group publishes a major new report exploring ways that the UK’s aviation industry can become more internationally competitive at the same time as acting as a catalyst for economic growth. In an increasingly globalised and inter-connected world, in which tourism and business travel play such pivotal roles, an affordable and well-connected aviation industry should provide the crucial infrastructure to support growth throughout the economy. Yet the approach of policy-makers towards aviation has been directly at odds with this over the past 15 years. On the one hand, successive Governments have been zealous in increasing the rate of Air Passenger Duty (APD) on flights to the point that we now levy the highest air passenger tax in the world. On the other, they have abjectly failed to address the urgent need for more runway capacity and the creation of a larger ‘hub’ airport. The combined impact is already starting to show as airlines cancel routes, tourists – particularly from long-haul destinations – avoid travelling to the UK and businesses cite the inhibitive cost of air taxes on frequent international travel.
It is for these reasons that our Group – a cross-party committee of parliamentarians – decided to conduct an inquiry into how the UK’s aviation industry can become more internationally competitive. Our conclusions challenge the orthodoxy of successive Governments but we believe they should lie at the heart of reinvigorating the British economy at a time when it needs it the most. They can broadly be split into two key areas: air passenger taxes and airport capacity.
It’s is our view that APD puts the UK at a competitive disadvantage compared to other European destinations. At the moment, APD is applied by only six of the 27 EU Member States. The impact is already being felt. In their evidence to us Manchester Airports Group said that Air Asia X blamed ever-increasing levels of APD as the primary reason for abandoning its flights to UK destinations. It’s a matter of public record that Continental Airlines (now part of United) would have abandoned flights from Belfast to the US if the level of APD were not reduced in October 2011 (the only decrease in APD granted by a UK Chancellor of the Exchequer this century).
This is not to mention the inevitable impact that year-on-year price rises have on ordinary families. I like many MPs have been inundated with letters from constituents over the summer complaining about the high cost of APD. In fact MPs have received over 100,000 letters over the last eight weeks alone, so this is clearly something that is of serious concern to our constituents (the vast majority of whom are ordinary holiday-makers). So we are recommending that the Treasury should commission an urgent report into the economic impacts of Air Passenger Duty with a view to revising its policy of increasing this tax each year. It is our view that all Government policy should be evidence-based and yet we find that there is no evidence that the recent increases in APD have been based on a thorough modelling of the impacts of APD on the UK economy, which seems extraordinarily short-sighted. Labour, Conservative and Liberal Democrats have taken for granted that APD – for too long seen as an easy-to-increase stealth tax – can keep rising virtually unnoticed. This is patently no longer the case and no wonder: the tax collected from APD is £2.8bn and is set to rise to £3.6bn by 2015.
On aviation capacity there can be no avoiding the fact that the UK’s hub airport is of national strategic importance. Policy-makers have to accept that capacity constraints at Heathrow are restricting the UK’s economic potential. Hub airports are uniquely capable of viably serving a greater route network, offering higher frequencies of flights than might otherwise be economically sustainable. This connectivity brings with it a significant economic benefit, making a country more attractive for international trade and foreign investment. As VisitBritain notes, UK businesses trade 20 times as much with countries that have a daily direct flight to the UK as they do with those countries that do not.
A lack of capacity at Heathrow is restraining connectivity. This is because new routes to the emerging markets which represent the greatest economic potential to the UK, such as China and Brazil, cannot be opened up. Airlines can not be expected to substitute established and successful routes which provide an economic return for unproven new routes. The result has been that the number of destinations served by Heathrow has reduced steadily in recent years, from 227 in 1990 to 180 today. By contrast, Amsterdam’s Schiphol Airport serves 313 destinations while both Frankfurt and Paris Charles de Gaulle serve over 250 destinations.
That’s why it’s my committee’s view that immediate policy action is required to either develop further capacity at Heathrow or develop a new purpose-built hub airport. We also believe all sustainable options should be considered for increasing capacity as soon as possible at Heathrow. Options that should be considered are the use of mixed mode on Heathrow’s runways, and the use of the existing runway at Northolt for UK regional air service access. Of course, this will only happen if there is cross-party agreement. I hope that this committee’s recommendations – with the cross-party endorsement of members – will be the start of such an approach.
We make many conclusions which cannot all be outlined here but it is worth noting that our recommendations are set against the backdrop of the need for the industry’s growth to be environmentally sustainable. For example, we recommend that expansion of aviation capacity should only be permitted were there are credible plans to ensure that environmental and social impacts are reduced to reflect the effect on local communities. I hope as many people as possible have the opportunity to read our report.
In his Budget speech earlier this year the Chancellor said that Britain’s economy was suffering because the UK “sold more to Ireland than to Brazil, Russia, India and China - put together.” He said that the Government wanted to double the UK’s exports to one trillion pounds this decade and set out new plans to help smaller firms in new markets. If the Government is serious about reversing this poor track-record in developing links with those economies that are most likely to be the drivers of global economic growth in coming decades then it must make air travel to and from the UK more affordable and more convenient. I hope that our report today will begin the dialogue in Government about how this can be achieved just weeks ahead of the Government’s own consultation into aviation capacity is expected to be announced.
Brian Donohoe is MP for Central Ayrshire and Chairman of the All Party Parliamentary Aviation Group.