Why flying is actually the road to recovery

By Brian Donohoe MP

The run up to the budget offers every organisation in the land the opportunity to make their case to the treasury on why they deserve tax cuts, tax revisions or spending changes. With the economy still dangerously fragile this year’s budget is more important than many delivered by a Labour chancellor in the past decade.

We need policies from the government and from Labour as a responsible opposition that will help drive growth. Part of this strategy for the coalition and for Labour must be to understand the drivers of growth and how jobs are created. This is something that my colleagues on the Labour front bench have rightly taken issue with over the last few months and I encourage them to push on in the final month before the budget statement.

In making a case for a better budget, Labour is looking again at what we did in government and whether this was always right. This is a painful review but one that must happen. Labour’s experience in opposition in the Scottish Parliament shows that we must review where we went wrong if people are to genuinely place their trust in us again – a process Iain Gray has done well.

If we are to admit that all our economic decisions we made in government, with the benefit of hindsight, may not have been correct then we should look at some of the more technical policies as well as those that create an emotional reaction. In looking beyond the 10p tax rate I want to focus on one taxation policy in particular that I believe puts Britain’s economy at a genuine and measurable disadvantage – Air Passenger Duty.

Under Labour we raised Air Passenger Duty time and time again to raise more money for the revenue. The coalition is doing the same. The problem is, this policy is making our recovery harder not easier.

Aviation is essential to Britain’s recovery. We will not recover in isolation from the global economy and as our competitors develop, so too, will it be important that the UK becomes more attractive to overseas investors and business. Put at its most basic level, Britain’s economic position in the world means jobs. If we continue to make investing in Britain less competitive than investing in our competitors we will miss out and that means fewer jobs for my constituents in Ayrshire and less jobs across the country.

The treasury currently nets some £2.2bn from air passengers each year. When Ken Clarke introduced this tax in 1994 the exchequer collected some £80m a year. That figure ballooned under Labour to nearly £2bn. George Osborne’s emergency budget set us on a course to double aviation duty by 2015. By the end of this parliament this figure will have grown to nearly £4bn. Every pound of this is money taken from the spending money of visitors, the hard-saved for holiday funds of Brits going abroad and, perhaps most importantly, from those businesses that keep our nation’s economy afloat. APD offers a profound disincentive to investing in Britain.

Let’s be clear about this also, the aviation lobby has not done itself any favours in halting the rise. The divided voice of airlines and airports has allowed government of every colour to divide and conquer the industry. As Chair of the All-Party Parliamentary Group for Aviation I meet with figures from the industry often. Their complaints about this government’s policy on aviation growth and taxation are often well-founded but are all too often made in isolation. For those, like me, who support this industry the divided voice has been frustrating to hear as it needs to be more united if it is to get any attention.

Reviewing APD, indeed anything to do with aviation, is potentially dangerous but necessary.

I’m not going to win too many converts, especially on the environmental wings of the party, to put a halt to aviation taxation rises. There is a place for this debate I agree. It relates to how we design taxation; but it must also relate to what utility aviation offers our country. At the moment, aviation offers jobs and growth and ever-increasing taxation may encourage less flights in Britain; but this simply means the planes land elsewhere and with them they take investment and jobs with zero overall reduction in carbon emissions. This is an equation the chancellor needs to study carefully – he should not hike aviation taxes any further.

In the budget, if the chancellor is to really address the reasons why our recovery is slower than expected, he needs not only address the pace and speed of the cuts he also needs to look at the barriers to doing business in Britain and Air Passenger Duty should be near the top of that list.

Brian Donohoe is Chairman of the All Party Group on Aviation