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BA Slams UK Travel Duty Hike

by Robert Lee,, London

12 December 2011

Further rises in the UK's air passenger duty (APD) are completely at odds with the government’s declared aim of creating the foundations for growth, British Airways (BA) has said.

Both Chancellor George Osborne's Autumn Statement and the publication of Finance Bill 2012 confirmed that APD will be extended to business jets of 5.7 tonnes or more, effective from April 1, 2013. This measure is expected to bring an additional 50,000 flights within the scope of APD. The total one-off compliance costs for the business aviation sector are placed between GBP1.5m and GBP2m, with average annual costs projected at GBP0.5m. The government has also confirmed that APD rates will increase from April 1, 2012, as announced at Budget 2011.

Slamming the move, BA said that it would now reduce the number of staff it had intended to take on, arguing that the increases make it impossible to proceed with intended levels of recruitment. It says it had been planning to create approximately 800 new jobs in 2012, but that it expects to now roughly halve this number. It will also postpone plans to bring an extra Boeing 747 into service next summer, and review the use of two others.

The government's decision follows on from a period of consultation designed to explore the scope for improving the fairness and efficiency of the current system. The consultation closed in June, having received over 500 responses from the aviation sector, domestic and international tourism, other business sectors and consumers. In its response to the consultation, released on December 6, the government says that the majority of respondents who commented on the extension of APD to business jets supported it in principle. However, the sector emphasised the need for the duty to be applied fairly, noting in particular the need to distinguish between short-haul and long-haul travel.

In its response paper, the government states that it accepts that the need for the extension of APD to business aviation make this distinction, and that it recognises that there is a range of comfort aboard flights which should be reflected in the rates of APD charged. Therefore, all flights aboard aircraft of less than 20 tonnes or with 19 seats or more, will be subject to the same distance banding structure and rates of APD that apply to passengers aboard commercial flights. As with commercial flights, seat pitch will be used to determine whether the reduced or standard rate of APD will apply.

Reacting to the news, BA argued that APD is by far the highest aviation tax in the world. BA believes that APD is a tax on economic activity – a tax on jobs in airlines, airports, UK tourism and leisure, and many supplier industries, and a tax on doing business with Britain. It says that, to provide the transport links vital for success in a global economy, UK business needs a thriving aviation sector. Instead, APD is not creating the foundations for growth, but is destroying them.

Keith Williams, BA’s chief executive, said: “The government talks about creating the conditions for jobs and growth – but the reality is the opposite. Its tax policy, which is uniquely hostile to aviation, is costing jobs and growth at British Airways. The rises in APD have left us with no alternative but to cut back on our planned recruitment. Many of these opportunities would have been for young people. At a time of high unemployment for new graduates and school-leavers, it is deeply regrettable that these additional tax increases have propelled us into this decision.”

Last month, the heads of easyJet, IAG (the British Airways parent company), Ryan Air and Virgin Atlantic wrote to Osborne to call on the government to scrap the levy entirely. They argued that the negative impact of APD on the UK economy outweighs any benefit from the revenue raised.

TAGS: compliance | tax | economics | business | air passenger duty (APD) | fiscal policy | revenue guidance | aviation | employees | budget | United Kingdom | tax thresholds | unemployment | revenue statistics | tax reform

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