The UK Treasury’s failure to reform Britain’s Air Passenger Duty (APD) leaves the Caribbean’s relations with the United Kingdom in a difficult place. After saying that it would consult, suggesting parameters for changing the tax, engaging in dialogue with the region’s tourism ministers, and receiving nine separate submissions from the Caribbean and its community in the UK, Britain’s Treasury ministers decided to do nothing.
By maintaining the status quo, the UK Treasury is now regarded in the Caribbean as having sent a message that Britain is not interested in the region’s economic growth or tourism’s multifaceted role in development. Although this is the result of ignorance rather than design on the part of UK Treasury ministers, the effect is the same: recent indications that Britain wishes to have a better, more modern relationship with the region have been undermined.
The UK Treasury’s 26-page response to the APD consultation makes clear that that APD rates to all Caribbean countries will remain considerably higher than those to equidistant competitor destinations such as South Florida, let alone US cities such as Los Angeles or Honolulu, thousands of miles further on from London. This is despite the good exchange Caribbean tourism ministers had when they met with new UK Treasury Minister Chloe Smith in mid-November, and a sense then that there was real sympathy for the region’s case in respect of APD. Unfortunately, two weeks after that and before the final decision on APD was made – when it seems the recommendations on possible changes to the banding system were put to UK Chancellor of the Exchequer George Osborne – the positive mood music began to change.
Although a small number of countries, some far-distant from the Caribbean, then wrote to the British Prime Minister expressing concern, this had no effect. The outcome was that on December 6, to the disappointment and astonishment of almost all of the global tourism industry, the UK Government announced that it would maintain the existing APD banding system and as a consequence continue to discriminate against the Caribbean in favour of the United States.
When the decision was known, Ricky Skerritt, St Kitts’ Tourism Minister and Chairman of the Caribbean Tourism Organisation (CTO) was unequivocal in his response: the announcement was, he said, “a slap in the face of the Caribbean,” adding that “it contradicts the message sent by the UK Chancellor in March 2011 when he cited the discrepancy between US and Caribbean APD rates as one of the reasons for holding a consultation on reform of UK APD.”
In an equally strong message, the Caribbean Hotels and Tourism Association (CHTA) condemned the UK announcement, noting that it followed an earlier statement by the British Treasury that APD rates to the Caribbean will increase by 8 per cent from April 2012, and that the UK will continue to penalise aspirational travellers travelling in premium economy, by taxing them at the same rate as passengers in First Class. CHTA also noted that both British Airways and Virgin Atlantic had announced schedule reductions to two major Caribbean destinations from April 2012 as a consequence of APD.
Both organisations also made clear that they regarded the decision by the UK Chancellor as showing a complete disregard for the impact of APD on the Caribbean community who live and vote in the UK. They pointed to statistics that show that increased ticket costs have forced the diaspora in Britain to decrease their visits to the region by 20 per cent since the four band system was introduced.
What was particularly disturbing for CHTA was the suggestion, contained in the UK Treasury’s response, that its main concern when it came to rejecting change, was the effect on travel to the US. “A move to a two band structure would require passengers travelling within the UK and Europe, and those travelling to band B destinations (including the United States), to pay more in order to ensure overall revenue neutrality,“ the UK Government’s response states.
For the Caribbean, the suggestion was that the UK Treasury was more interested in retaining lower rates to the US than in addressing discrimination against the region, and went back on its earlier recognition that a marginal increase in the short haul APD rate could enable adjustments elsewhere.
What happens next is far from clear. Why the UK Chancellor chose to completely ignore the discriminatory nature of the banding system or the damaging impact that APD is having on the Caribbean economy remains obscure, and the Treasury’s published response intellectually impossible to understand. Worse, the Caribbean has been insulted. It had recognized in late 2010 that global economic pressure meant that the UK Government could not afford to reduce its overall tax take. It was therefore not asking for preferential treatment, but for parity with the US. As a consequence it proposed a solution that would have addressed the issue of discrimination in a manner that was fair and balanced. Instead it received a response that is likely to be damaging to UK Caribbean relations.
Here was an issue on which the Caribbean did everything correctly, bringing together the industry, the air carriers, every government in the region, the Caribbean community in the UK, investors, friends in Parliament, and others able to make formal representations and suggest solutions that were revenue neutral and met the UK Government’s own criteria. Despite this its case was not even responded to in the Treasury report to the amazement of many governments and industry groups from outside the region.
As the dust begins to settle, Caribbean governments and Caricom will want to think hard about what all of this means and consider how best to develop a more formal response. There will be an opportunity for more to be heard about APD at the UK-Caribbean Government Forum due to take place in January 2012, an event intended to improve the UK-Caribbean relationship.
David Jessop is the Director of the Caribbean Council and can be contacted at david.jessop@caribbean-council.org
