Monday, 20 February 2017

Air Passenger Duty bleating LOLZ

More rent seeking in the City AM:

In one part of Whitehall, the Department for Transport, ministers and civil servants recognise the importance of developing policies over the next decade to help UK aviation to grow sustainably...

But their efforts will be largely in vain if the Treasury cannot be persuaded to abandon hopelessly uncompetitive APD rates that are a major obstacle to UK businesses seeking to follow the Prime Minister’s lead by going into the world and building new trading relationships...

Of course, it is good news that the government has given the green light to the construction of a new runway, but the fact is that we will massively reduce the impact of expanding aviation capacity if we don’t have a competitive tax regime that will enable us to take advantage of it...

The government should also ensure that aviation-related negotiations and decisions are prioritised during the EU withdrawal process – but unless the UK tax environment is competitive, all the air services agreements in the world won’t make it viable for airlines to open new routes to and from the UK.

A few facts:

Gatwick and Heathrow are running at close to 100% capacity, so by definition, APD cannot be reducing the number of flights there. APD might have a marginal impact on the number of flights at less popular/regional airports, but the rentiers don't care about 'the regions'.

The bulk of the value/price of an airline ticket is where you are flying to and from and at what time of the day etc, the actual cost of doing it is surprisingly small. Compare the price of a ticket from Stansted to Riga with the price of a ticket from Heathrow to Berlin, or the price of a very early/late flight with one in the daytime! The difference in price is rent/location value.

Admittedly, APD is a dreadfully clunky way of collecting part of the rental value, but compared to VAT-liable businesses, airlines are still getting a fairly good deal overall:

Air transport is VAT zero-rated. That means that they can reclaim all input VAT but do not have to charge VAT, a best-of-both worlds status also enjoyed by 'home builders' and proper exporters.

Total revenues of UK airlines £22 billion per annum.

Total UK APD revenues £3 billion per annum.

Ignoring the fact that UK airlines also have non-UK revenues and some APD is payable on flights with non-UK airlines, passengers are paying £25 billion all in.

If air travel were VAT-able, the VAT due would be one-sixth of that = £4.2 billion, a lot more than the £3 billion they are actually paying.

Under the circumstances, it would probably be better to get rid of APD and impose VAT instead; that would bear more heavily on flights to and from Heathrow and Gatwick and would reduce the tax paid on flight to and from less popular/regional airports, as well as collecting a larger share of the rental income. The problem then would be collecting VAT from non-UK airlines, I'm not sure how you'd enforce that.

So as ever, the best kind of tax on air travel is a charge on the value of the landing slots, whether the airlines pay it directly or it is included in the Business Rates assessment of the airports is by the by. Airports themselves are probably in the best position to negotiate this and they can just add it to their landing fees.

Heathrow wants a new runway? Fine, they can haggle with HM Treasury over what the extra Business Rates will be; they are in the best position to work out how much extra pure profit they can make. HM Treasury can run a parallel auction with Gatwick, and whoever bids the most is allowed to build a new runway.



mombers said...

Similar arguments about Business Rates. If these are so bad, why are the most successful businesses paying the most? Surely all shops in London would have shut down ages ago and moved to Scunthorpe. The revaluation is a good thing for the latter and indeed 2/3 of businesses who are seeing a reduction or no change. It's just 6 years too late

Lola said...

M. I've been having fun on the Telegraph and elsewhere making those points about BR :-)

Mark Wadsworth said...

M and L, ta for back up.

At least with APD, they are not bleating about "small local airports".

L fairfax said...

@Gatwick and Heathrow are running at close to 100% capacity.
Can long haul flights not go from Stansted, Luton etc? If so why don't some of the specialized ones (cities with not many flights so people will be less fussy go there).
For example going to Colombia direct in the summer from Heathrow is £300-500 more than indirect which is a massive difference.

Mike W said...

Letter to 38 Degrees who have been duped by this too:

No- you are wrong on this! Business rate is a 'good tax'. It is close to Henry George LVT. It just needs to be done as a replacement tax (pound for pound) for 'bad tax' like like VAT, National Insurance and Income tax. Sorry, but if you are siding with Daily Mail and Telegraph you must know this protest stinks! Look at the data. Yes the rental value of land in the middle of nowhere is small and a chippy in Chelsea is high. So? Headline should be: Business revolt grows in Tory South and London over 'outrageous and unfair' rate change!

Mark Wadsworth said...

LF, that requires a whole new post!

MW, well said.

Mike W said...

Re spoof and real mail,

I did actually send that one :)

Mike W said...

I had a dig at the Telegraph in the comments above. So fairs fair. This is rather good and fills in some gaps for me. 10/10

One small point: Hate the mixing of the seperate groups;'landlords' with 'business' that goes unchallenged at one point.Even implies that LVT is a universal canon of economics - if only :)