24 October 2011

With the imminent rise in Air Passenger Duty, Jeremy Taylor, CEO of The Gatwick Diamond Business Association, was contacted by Crawley MP, Henry Smith, to help him evaluate the impact of increasing aviation taxes (APD - Air Passenger Duty) on local businesses.

With the imminent rise in Air Passenger Duty, Jeremy Taylor, CEO of The Gatwick Diamond Business Association, was contacted by Crawley MP, Henry Smith, to help him evaluate the impact of increasing aviation taxes (APD - Air Passenger Duty) on local businesses.

Smith has tabled an Adjournment Debate on the future of APD and this is on today’s order of business in the House of Commons.

Many people are aware of the costs to leisure travelers, but not enough has been done to identify the impact on businesses that rely on international connectivity, especially as the Government has been encouraging business to look to International Markets for export opportunities as a way to guide the economic recovery.  However, increasing costs of flying coupled with a perceived anti-aviation stance by the Coalition, have lead to increasing difficulties for business to compete on that international stage.

Businesses are questioning the value of pursuing overseas trade.

Local oil and gas exploration company CGGVeritas has 390 highly qualified geo-physicists and engineers based on Manor Royal in Crawley and in Redhill.  From August 2010 to July 2011 the company’s APD bill alone was £47,564 for 1500 flights. International travel is a vital function of the business as employees frequently need to be on-site at oil and gas fields around the world.  Ian Thornton Senior Vice President said: “For a company like CGGVeritas whose main trading area is Europe, Africa and the Middle East, with some worldwide, APD is an additional unnecessary burden on our operating costs, in the present market conditions.”

Ian Woodland of Elementus (SME in Horsham) told us that his company has spent £11,400 in Air Passenger Duties on 470 flights in the past three years.

He also said “We have just commenced working in the USA for one of our global customers. We are hoping to expand our business in this country, so any increase in this tax could threaten this expansion. Global customers are looking to use single suppliers, as they try to reduce the cost of managing their supply chain. If this tax increases, it could disadvantage UK companies when tendering for these global contracts.”

Siemens Hearing Instruments have a facility in the Gatwick Diamond and whilst their business travel is at the lowest level, Trevor Andrews, MD, said “However, we are unable to pass on these increases in our cost via our product sales, so we have to make cuts elsewhere. I am not sure the government is always aware of this dilemma.”

One of the key objectives for UK tourism set by The Minister for Tourism, John Penrose is to recapture the UK's position within the top five tourism destinations in the world measured in terms of inbound revenue (where we have slipped to seventh place in recent years). This objective seems at odds with the APD tax regime.

John Donaldson, Executive Director with Arora Hotels said “Generating 8% of total employment, hospitality accounts for 2.44m jobs placing the industry as the fifth largest in the UK. Given the right framework, this could grow by 10% over the next five years alone and exponentially beyond that, provided we are given the ability to derive our fair share of the forecasted growth in global travel. Having the highest APD rates in Europe creates an unnecessary barrier to achieving this goal and contradicts the Coalition Government's aim to reduce our trade imbalance.

“Additional APD receipts could be more than offset by lost visitor income from tourists bypassing the UK to other more 'tax-friendly' destinations. We should be doing directly the opposite by encouraging tourism, especially in the run-up and legacy of the 2012 Olympics.”
Reflecting the importance of inbound visitors on every aspect of our economy, Alex Foulds of Southern Railway added their concerns “We work closely with the airport and in recent months we have seen growth in airport passenger numbers and growth in its public transport market share.  We would not want this momentum to be lost or hampered as this will impact on the medium term growth aspirations of our business as well as the Airport.”

In respect of the Airline Industry, it is becoming ever harder for Airlines to operate from the UK with this punitive tax regime.  At the recent launch of the Air Asia X route from Kuala Lumpar to London Gatwick, Azran Osman-Rani, CEO, said that it is commercially more difficult to operate from the UK than from France.  He also pointed out that 10%-12% of the passengers flying from Paris to Kuala Lumpar are British Nationals.  Whether this is because they are UK residents looking to avoid APD or they are resident in France for tax or work reasons, it can be seen that the Tax regime is having a negative impact on the UK’s ability to connect with emerging markets.

From 1st November 2011, the rate of air passenger duty for direct long-haul passengers departing from airports in Northern Ireland will be cut to the short-haul rate, which is currently £12 in economy and £24 in business and first class.  This measure is a response to the unique challenge facing Northern Ireland and is designed to ensure local airports remain competitive, demonstrating the Government's commitment to stimulating and rebalancing the Northern Ireland economy. 

It is absolutely imperative that the Coalition Government starts to support the rest of the UK economy in the same way.  As Trevor Andrews from Siemens also said “The tricky challenge is the balance of the need for tax revenue to cover our country’s debt, and whether this tax stifles growth and costs jobs.”

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