Andrew Griffith: Suspending Air Passenger Duty could give the aviation industry the lifeline it needs

10 Aug

Never has there been a more important time for Britain to show that it remains open for business.

The UK has been an open, connected economy since before Adam Smith wrote his Wealth of Nations in the eighteenth century. The prosperity to pay for the high-quality public services that we have come to expect depends fundamentally upon trade, exports and the world actively choosing to “do business” here. Among leading countries, only Switzerland, Singapore and the UAE – three nations incidentally that are all now offering airside testing for Covid – are more reliant upon international trade in order to maintain their own standard of living.

Aviation is therefore doubly important to the UK economy. It is a large sector, accounting for many high skilled and well-paid jobs. But even more vital is its role at the centre of British trade, carrying exports in the holds of the same planes that bring investors, tourists and students to the UK. Indeed, as the UK seizes the opportunities of becoming an independent trading nation again at the end of this year, this strategic importance will become even more pronounced, given the export ‘infrastructure’ that our aviation industry provides in supporting connectivity and routes with the rest of the world.

That is why a recent report from Airlines UK and York Aviation projecting a decline in the UK’s connectivity from the impact of Covid is so dispiriting. While a short-term decline is unsurprising given the reality of the impact of the pandemic on the sector – one major London airport closed and air passengers at some points down by 97 per cent – the persistence in decline is.

Forecasts show that from this December the UK is expected to see a decline in long-haul connectivity of over 40 per cent. For domestic connectivity, this is forecast at 35 per cent, and for short-haul, just under 20 per cent. Such a rapid clogging up of the arteries of Britain’s trade with the world should concern us all.

What the report also shows however, is that not all of this decline is inevitable.

The UK has a diverse and competitive aviation sector and the Government is rightly reluctant to try to pick winners or to second guess the motives of commercial businesses. Some airlines were facing challenges long before Covid.

However, one sector-wide lever available to the Government to help kickstart a recovery in aviation is to suspend the additional burden of Air Passenger Duty (APD). By waiving APD for a year, it is estimated around half the routes that would otherwise be lost could be saved, providing a very real boost to the prospects of the sector.

Under this scenario passenger demand would increase by around 12 per cent, equating to 21 million passengers against a baseline number of around 170 million. Such an increase would safeguard thousands of aviation jobs across the country including those of my constituents in Arundel & South Downs near Gatwick Airport in West Sussex.

Given the reduction in passenger volumes anyway, the cost to the Exchequer would be relatively modest and compensated for in the longer term by retaining a larger industry tax base that would otherwise be lost.

If suspending the headwind of Air Passenger Duty can do anything to help to get UK aviation – our key linkage and lifeline to the rest of the world – back on its feet sooner, then we would be remiss not to seriously consider it.

Stamp duty cut welcome, but concerns about “tomorrow’s taxpayers”. Centre-right think tanks react to Sunak statement.

8 Jul

Adam Smith Institute –  Matthew Lesh, Head of Research, said:

“Stamp duty is Britain’s worst tax. This temporary cut is the right move at the right time to get Britain moving. Temporary measures to get young people work experience, to build inwork skills, are also welcome in the face of an increased minimum wage.

“Furlough continues for a few more months but reality will hit eventually. In the forthcoming Budget, the Chancellor should cut the cost of hiring by permanently reducing the burden of employers’ national insurance, remove red tape like occupational licenses, and abolish the factory tax to get businesses investing in their futures.

“The stimulus proposals are very questionable. The VAT cut and subsidising restaurants will be expensive and provide limited benefit. People aren’t spending on food, accommodation and attractions because of safety concerns, not lack of demand or cash.”

Centre for Policy Studies – Robert Colvile, Director, said:

“We welcome the focus on jobs and training, which is what the CPS recently called for in our report ‘After the Virus‘, but the challenge will be how to support the economy as we transition to new ways of working in a post-virus economy.

“You can see the Government is trying to strike that balance with this package, but these measures are temporary, and will have to be paid for down the line. This is why we would like to see the sort of long-term structural change that will maximise growth, support businesses and encourage them to create new jobs without placing the burden on the taxpayer.”

TaxPayers’ Alliance – John O’Connell, Chief Executive, said:

“The chancellor announced a ‘plan for jobs’ but it’s tomorrow’s taxpayers who will have to work hard to pay for it all.

“While the jobs retention bonus will help ensure that the furlough scheme isn’t just an expensive pause on mass lay-offs, taxpayers will be concerned about how and when they will pay the bills for ever-more spending promises.

“It is cheering that the chancellor appreciates the economic benefits of cutting taxes and in particular lifting the stamp duty threshold will provide a boon to the housing market.

“That said, while easing the burden on taxpayers is always welcome, we must look at longer-term tax simplification and put a stop to temporary fiddles.”

Institute of Economic Affairs – Professor Syed Kamall, Academic and Research Director, said:

“We are in an unprecedented situation and there remains the issue that many individuals and families are fearful of leaving their homes to resume every day activities. The Chancellor can only do so much in terms of measures introduced to get the economy moving.

“The cut to Stamp Duty is welcome but why isn’t it permanent? It is a destructive, regressive tax that clogs up the housing market and limits labour mobility. Making it permanent would get the property market moving and encourage those who want to downsize as well as those looking for family houses, freeing up homes for first-time buyers.

“It is disappointing more was not announced to encourage private investment in infrastructure – such as reopening old railways or rezoning to allow homes to be built in places being vacated by shops, such as high streets.”

Resolution Foundation – Torsten Bell, Chief Executive, said:

“Today’s Budget in-all-but-name was a £30 billion top up to a pandemic response that is approaching 10 per cent of GDP and will push borrowing to around £350 billion this year.

“The focus on jobs and some, but not all, hard-hit sectors was very welcome. Kickstart jobs for young people represents a tried and tested policy, but the new Job Retention Bonus is poorly targeted at those jobs that are most at risk of being lost.

“The Chancellor is right to focus VAT cuts on food, accommodation and attractions. However, the lack of support for face-to-face retail means significant challenges for Britain’s High Streets. The innovative meal deal voucher scheme is far too small scale to make a significant difference.

 “The Chancellor, having previously announced huge measures to protect household incomes, has now set out much more normal demand support for the next phase of this crisis. That might be sufficient if the UK sees the V-shaped recovery we all hope fora. But given that this economic crisis is likely to be with us until a vaccine is found, he should expect to be returning with further measures to support the economy in the Autumn.”