While there's no doubt the end of taxes would produce a small bump in inbound traffic, PricewaterhouseCoopers is out of its gourd if it thinks scrapping the tax would boost tourism by 40%. The biggest benefit to cutting the tax will be outbound tourism.
Airlines have told the Chancellor they can help “drag Britain out of recession” if he abolishes Air Passenger Duty (APD) at next month’s Budget.
Scrapping the controversial tax, which applies to all passengers flying from a UK airport, would deliver a 0.45pc boost to GDP within 12 months and could generate 60,000 jobs by 2020, according to a report commissioned by British Airways, easyJet, Ryanair and Virgin Atlantic.
APD adds £13 to the cost of a short-haul flight, up from £5 in 2007, and as much as £92 in the case of long-haul. Airlines argue it acts as a major barrier to both tourism and potential investment in Britain.
The UK is currently ranked 134th out of 138 countries by the World Economic Forum in terms of competitive aviation taxes and airport charges, ahead of only Senegal, Ivory Coast, Mali and Chad.
A PwC study commissioned by the four major airlines estimates the economy would be £16bn better off by 2015 were APD to be scrapped.
Withdrawal of the tax would deliver an immediate increase of as much as 40pc in the number of foreign visitors to Britain, PwC estimates, and would encourage airlines to invest in new aircraft and develop routes to high-growth regions such as Asia, Latin America and Africa.
Over the medium term, PwC believes an increase in business travel as a result of lower fares and better connections would lead to growth in exports and greater investment from companies that trade with foreign countries.
The biggest boost would be in the first year of abolition, increasing UK GDP by 0.46pc.
“I know 0.46pc doesn’t sound a lot but that’s the difference of dragging Britain out of recession and into growth,” said easyJet spokesman Paul Moore.
The boost to UK GDP would average out at 0.3pc between 2013 and 2015 and would fall over the ensuing five years but would still add 0.11pc to economic output by 2020, the study claims.
Airlines have long campaigned against APD, which was first introduced in 1994. They believe this latest analysis brings new impetus to the debate as PwC’s research was carried out using economic modelling known as “computable general equilibrium”, also used by the International Monetary Fund and World Bank. Such modelling takes into account the overall effect on an economy of one tax change.
PwC acknowledges the Treasury’s tax take would be £3bn-£4bn lower a year as a result of scrapping APD. However, the report claims the policy change would pay for itself as the Exchequer would receive more in VAT, corporation and income taxes as a result of increased business activity. The Treasury would benefit from an average net positive gain of £250m a year, PwC suggests.
BA, easyJet, Ryanair and Virgin have submitted the research to the Treasury and hope to meet with ministers ahead of next month’s Budget.
In a joint statement, Willie Walsh, head of BA’s parent company; easyJet boss Carolyn McCall; Michael O’Leary, chief executive of Ryanair; and Craig Kreeger, the new head of Virgin Atlantic, said: “[The report] proves APD is one of the three most destructive taxes, alongside corporation tax and fuel duty.”
A Treasury spokesman said: “Despite current pressure on the public finances and the challenge of cutting the deficit, the Government has limited any rise in APD to inflation since 2010. We do not recognise the figures in this report or agree with the assumptions behind it.”