Benefits of abolishing APD have been underestimated, says report

A new report into the impact of Air Passenger Duty shows its abolition could be more beneficial than previously thought.

The independent analysis, carried out by PwC on behalf of four UK airlines, shows that getting rid of APD could generate higher taxes from other sources, resulting in a net gain of £570 million in the first year alone.

UK airlines have welcomed the findings, which suggest that the air tax suppresses demand for flights by 10%.

The updated study, which follows an earlier investigation by PwC in 2013, takes into account changes to APD in the past two years and evidence presented by the Airports Commission in their December 2013 report.

The report’s authors said: "As part of their assessment for the need for new runway capacity in the South East of England, the Airports Commission assessed the relationship between the aviation sector and GDP. Separately, it found a stronger link than in the evidence used by PwC in their modelling for the 2013 APD study. By factoring in this new evidence the revised APD analysis suggests that the benefits of abolition had been underestimated and are even greater than previously thought."

The report claimed the boost to GDP would come from airlines investing in new routes and maximizing existing capacity to meet an estimated 10% increase in demand, more business and leisure travel and a 7% net increase in foreign visitors to the UK by 2020.

Airlines are hoping the report will persuade the Chancellor George Osborne to abolish APD in his Budget next month.

Nathan Stower, chief executive of the British Air Transport Association, said: "Next month’s Budget must challenge the existing orthodoxy on Air Passenger Duty. The UK is an island trading nation yet we have the highest tax on flying in the world. This independent economic analysis, using methodology used in studies for the Airports Commission, suggests that the question for the Chancellor is not ‘can we afford to abolish Air Passenger Duty?’ it’s ‘can we afford not to?’"

EasyJet chief executive Carolyn McCall said: "Abolishing Air Passenger Duty would boost the UK economy by supporting tourism, investment and business activity. There is a real opportunity with this for the UK to be more competitive. The Government has already removed the tax for children and we hope that it will abolish this tax completely, helping to make travel more affordable for all passengers."

IAG boss Willie Walsh added: "APD is an out of control tax. The Government just keeps piling on increases. Despite compelling evidence, the UK Government continues to cling to the notion that short-term gains in taxation trump long-term gains in economic growth and productivity. It is short-sighted and continues to erode the UK’s standing in a global economy."

Virgin chief executive Craig Kreeger said: "APD is a tax on UK exporters, productivity and growth. While we welcomed the recent changes to APD, it is frustrating that it has been left to research from the private sector to conduct a detailed economic analysis of its impact. It is time for the UK Government to recognise, fully review, and take action to reduce the highest travel tax burden imposed by any nation."