On November 29 the UK Chancellor of the Exchequer, George Osborne, will present his autumn statement to the UK Parliament. While it is by no means definite that he will address the issue of Britain’s discriminatory Air Passenger Duty (APD), there are indications that around that time the UK Treasury will publish the outcome of the APD consultation that the British government initiated earlier this year.
For those who do not know, APD is a controversial UK tax on airline tickets, based on the distance flown, grouped within four distance bands. This means for the Caribbean, placed in Band C, the UK tax added onto a coach class ticket is US$121 (£75) and US$241 (£150) on a premium economy, club or first class ticket. This compares with charges respectively for the US of US$96 (£60) and US$193 (£120) in Band B even though the flight might be to San Francisco or Hawaii.
All bands in 2012 are to be increased by double the rate of UK inflation as there was no increase in 2011, with the consequence that the duty may rise by around nine per cent in 2012.
The tax has been particularly damaging to those Caribbean nations that are heavily dependent on UK tourism such as Barbados, St Lucia and Antigua. It has also caused real problems for the Caribbean diaspora in the UK at a time of increased austerity and has resulted in airlines cutting scheduled services to destinations such as Jamaica where APD has affected negatively the viability of operating flights carrying a particular mix of traffic.
In March of this year Britain’s Conservative government, in response to lobbying from the Caribbean, its community in the UK and a wide range of international and industry interests, launched a consultation process aimed at reviewing the structure of APD. It called for views on one of two options aimed at simplifying the existing regime.
The first, the UK Treasury suggested, might involve reverting to a two band system. This model would divide short haul and long haul travel within a delineated boundary. Short haul would be based on the European Union/European Economic Area/European Civil Aviation Area and long haul would be the rest of the world. Such an approach would, it argued, recognise that the greatest carbon emissions came from the more travelled and consequently environmentally less friendly routes in the European area. It would also avoid the discriminatory nature of the present system.
As an alternative the UK government suggested creating greater differentiation within the long-haul sector by introducing three distance tax bands and two classes of travel. This approach proposed drawing boundaries around 2000, 2000 to 4000 miles and beyond 4000 miles.
In June the Caribbean was one among many countries, airlines, airports and environmental interests that responded. Then, Tourism ministers submitted through the Caribbean Tourism Organisation a detailed response, fully supported by the Caribbean Hotels and Tourism Association, that made clear the region’s support for a two band system, having previously proposed just such an approach as a solution to the difficulties the region faced.
In what was probably a first, representative organisations from the Caribbean community in the UK also submitted to the UK Treasury evidence of the damage the tax was doing to family ties. UK Treasury officials have since then been reviewing the responses received in preparation for a ministerial decision.
On October 14, just as the political decision-making process was about to begin, the Minister responsible for the decision, Justine Greening MP was promoted to the position of Secretary of State for Transport in a mini-ministerial reshuffle following the resignations of the UK Secretary of State for Defence. Her role as Economic Secretary to the Treasury with responsibility for APD was given to Chloe Smith, a young high-flying MP.
Speaking about APD in a recent adjournment debate in the House of Commons, Ms Smith made clear that it was her hope to meet with the Caribbean and Australia and New Zealand before she made any final decision.
The Minister told the House of Commons “not only did [the APD dossier] fall on my desk with a thump in my first week, but the main challenge is to get the policy right for the long-term benefit of passengers, the industry, the economy and those who have responded to the consultation.”
In her remarks she made clear that whatever decision the UK took – reversion to a two band system is widely believed to be the most likely – the overall tax take will not diminish. She, like her predecessor, emphasised that any solution would overall have to be revenue neutral. “We inherited a fiscal deficit … Unfortunately, I cannot promise the House that APD will be cut in the near future,” she told MPs.
What this means practically for the Caribbean is that if the UK were to opt for a two band system, the primary concern would be the level at which the short haul and long haul rates would be set. As more short haul flights are taken than long haul, a relatively modest increase in the tax on such tickets would result in a greater tax take from shorter journeys. This would go a significant way to offsetting the tax on all long haul flights to the benefit of the Caribbean and destinations much further away, depending on the level at which the duty is set.
However, extensive domestic lobbying in the UK should not be discounted. Low cost carriers, the popular media, regional airports and others, recognising that most UK travellers make journeys in Europe, have been making a strenuous case that less well off tourists should not be penalised at a time of national austerity.
This suggests that the UK government may pay more attention to what a decision on APD will mean to people on the lower end of the pay scale. If fuelled by clever public relations from low cost carriers, airports and tour operators with a significant presence in Europe, there may be political reluctance to increase short haul APD rates significantly.
For this reason it is not just Caribbean governments that need to keep up the pressure. The diaspora message continues to be a vital element in the Caribbean’s APD campaign. British politicians, like their counterparts elsewhere, remain particularly sensitive and responsive to the interests of voters especially where theirs or that of their political colleagues involves retaining a marginal constituency.
Previous columns can be found at www.caribbean-council.org
