Analysis: Budget surprise, but what next for APD?

The Chancellor surprised many by placing the Caribbean into Band B of Air Passenger Duty, effectively handing £200 million back to the industry. Is abolition next? By Gary Noakes

For once, the travel industry can agree; Chancellor George Osborne got it mostly right with his surprise reform of Air Passenger Duty in last week’s Budget

From April 2015, APD will be simplified from four bands into two: Band A for short-haul flights of less than 2,000 miles and Band B for those further than this. Band B will be charged at £71 for reduced rate (economy) passengers and £142 for standard rate passengers. This compares with the 2014-15 range of £85 to £194 in Bands C and D.

Months of lobbying led to George Osborne effectively handing the industry a £200 million booking incentive – the value of the tax saved – and, equally, “a complete victory for the Caribbean” according to the region’s tourism organisation. The removal of Band C means the Caribbean falls into Band B, where the US sits, removing the anomaly whereby a flight to Los Angeles attracts less tax than one to The Bahamas.

Sticking together

Richard Sealy, Barbados’s minister of tourism and international transport, said he was struck by how the industry came together on this issue. “Our key travel industry partners were incredibly supportive in arguing with Barbados against APD while still continuing to advocate travel to our country,” he said.

The change drew predictable plaudits from operators to the region, although some doubted the extent of the benefits.

Caribtours’ managing director Paul Cleary said: “I am delighted a wrong has been put right, but it has taken all this time and damage has been done to the Caribbean, but all credit to the industry and the Caribbean Tourism Organisation.” He added: “APD per se is still too high, but it has not been killing our business.”

David Kevan, partner and director of luxury specialist Chic Locations, added: “Our average selling price is £3,000, so the discount compared with the Far East is £50-£60. It is not enough to be crucial, but it is a step in the right direction.”

He also argued the change could still prove “significant”. “It is a tax that should be abolished; this is a good start.”

Kevan believes the tax was hampering inbound tourism from key overseas markets and may have hit on one of the reasons for the change of heart, as it was probably not just the Caribbean’s efforts that led the thinking of the Chancellor.

More likely, it was the tax burden on flights to three of the BRIC countries – Brazil, India and China, that convinced him. These three are key targets as trading partners and the UK’s efforts to drive exports – and attract inbound tourists – have not been helped by placing them in Band C. From April 2015, these three BRICs will all be in the same band as their other member, Russia.

Trying to convince the government to cut taxes on flights for holiday-makers was always going to be a struggle, no matter how much the argument about penalising hardworking families going to Disneyland or those visiting their family in the Caribbean was put. What did work was putting the case for business and UK PLC, something that was hammered home by the Guild of Travel Management Companies.

A step further

Paul Wait, GTMC chief executive, said he had met with 80 MPs in the past 15 months. “We said if you want this export-led recovery, put the BRIC countries into Band B. To my delight they went a stage further.”

There remain however some dissenters, with British Airways sounding unimpressed. “It still punishes families and costs UK jobs. The only long-term solution is to scrap APD in its entirety and allow the aviation and tourism industries to flourish, to the benefit of the wider UK economy,” it said, highlighting that the campaign against APD is not over.

Indeed not. The Fair Tax on Flying Campaign, having tasted victory, has more in its sights. “We’ll focus on the overall level and the fact that APD is linked to inflation, so there is an annual rise built in,” said a spokeswoman.

“But we should acknowledge that this is an important first step at a time when the Chancellor is still in budget deficit mode. The fact that he has effectively offered £200 million is not to be taken lightly.”

Sourced from TTG Digital

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