WRITTEN EVIDENCE
APPENDIX 1
Memorandum from the Airport Operators
Association (AOA)
1. INTRODUCTION
This submission is made by the Airport Operators
Association (AOA). AOA is the trade body that speaks for and represents
the interests of British airports. AOA members include all of
the nation's hub, international, and major regional airports as
well as a significant number that serve local communities, general
and business aviation as well as flying training and recreational
flying. A listing of our airport members is attached.
In making this submission, we have taken account
of the Committee's "Pre-Budget Report 2002: Tax and the Environment",
the specific references to Aviation in that report and the Committee's
wish to examine the progress being made to take account of the
environmental costs of aviation in the light of the recent Treasury/DfT
discussion document, "Aviation and the Environment: Using
Economic Instruments".
We have also taken account of the fact that
one of the Committee's primary objectives is to "review the
progress made by the Treasury in placing environmental objectives
at the heart of its fiscal strategy".
Before addressing the specific questions that
the Committee has indicated that it would welcome memoranda from
interested parties, AOA would wish to address the following:
— Environmental tax strategy;
— The need for a "level playing
field";
— Maintaining competitiveness.
2. ENVIRONMENTAL
TAX STRATEGY
Aviation in the UK is a highly successful business
sector and in common with all other industrial sectors makes its
contribution to general taxation revenues through normal business
taxation—VAT, income tax, national insurance, corporation
tax, etc.
In addition to these "normal" taxation
sources, aviation in the UK also contributes around another £1billion
per annum to the Treasury in Air Passenger Duty (APD).
APD was introduced in 1995 specifically because
there was no taxation or duty on aviation fuel—a position
that exists in every country in the world as a result of international
agreement. APD is a de facto "environmental tax". However,
there is no apparent strategy behind the levying of this tax other
than a means of adding a further revenue strand to the Treasury's
annual tax take. Insofar as AOA is concerned we do not believe
this is a sustainable position particularly if the Treasury specifically
and the government more generally is serious about placing environmental
objectives "at the heart of its fiscal strategy".
APD was introduced, increased and continued
with a veneer of "environmental objectivity" when in
reality it is nothing more than a mechanism to raise revenue for
government.
Our experience therefore is entirely in line
with that expressed by the Committee in its Pre-Budget Report
2002 when it stated in paragraph one "we see little evidence
of an environmental tax strategy".
AOA has argued consistently for the hypothecation
of APD with revenues directed towards identifiable measures designed
to assist in the mitigation of the negative environmental impacts
associated with aviation activity. We do not consider that it
is acceptable for government to raise revenues by way of environmental
taxation and then do nothing to address the environmental impacts
that have been assessed as the reason for introducing the taxation.
AOA believes that a coherent long term strategy for APD (or other
aviation environmental taxation) is required.
AOA has great concern that the recent Treasury/DFT
discussion paper on "Aviation and the Environment: Using
Economic Instruments" is a precursor to a further increase
in APD by using the monetary impact assessment of aviation's external
costs as the justification for the increase.
3. THE NEED
FOR A
"LEVEL PLAYING
FIELD"
Opponents of aviation consistently argue that
the industry is under taxed. They also consistently produce inconsistent
estimates of this level of under taxation and many even compound
the situation by claiming that aviation receives billions of Pounds
in public subsidy. These are entirely false claims.
Aviation in the UK receives little or no public
subsidy (the exception being lifeline routes operated in the Scottish
highlands and islands). Aviation meets its operating and capital
costs through operating charges. This compares with bus and rail
services that receive significant public subsidies.
There is no tax on aviation fuel as previously
noted. However, fuel duty in the bus industry is largely rebated
and for the rail sector has been described by the Rt Hon John
Spellar, MP, Minister for Transport, at a recent Royal Aeronautical
Society conference as being "very modest."
However, aviation activity in the UK contributes
around £1 billion in APD, a tax which no other public transport
mode has to impose on its activities.
Taking all of these facts into account there
is a very strong case for arguing that, compared with other transport
modes, aviation makes a greater tax contribution. Furthermore,
there is little evidence of these other modes being called to
account for their negative environmental impacts and even less
indication that economic instruments are being considered as means
whereby these external impacts may be addressed.
These are important points as the government's
objectives for aviation as stated in the discussion paper on "Aviation
and the Environment; Using Economic Instruments" include
that "... aviation, like other industries, should meet its
external costs, including environmental costs." We do not
argue with this overall principle but we would like to see evidence
of a "level playing field" with the same principle applied
to other public transport modes.
The concept of "level playing field"
is also important in the international context as there are significant
potential dangers in treating UK aviation in isolation and as
a result damaging its international competitiveness.
4. MAINTAINING
COMPETITIVENESS
British aviation is a striking example of a
successful and dynamic business sector that makes a massive contribution
to the economic development and prosperity of UK plc. Aviation
is essential to modern business supporting the efficient delivery
of goods and services. This is demonstrated by the fact that aviation
contributes over £10 billion per annum to the UK economy
and contributes substantially to making the UK the number one
choice for inward investment in Europe. Aviation is also essential
to key growth industries such as pharmaceuticals, financial services,
manufacturing and tourism that need access to efficient air transport
services in order to sustain their economic development and success.
In addition, aviation is a major source of employment
supporting more than 180,000 direct jobs and more than twice as
many additional jobs through indirect employment in the supply
chain, and induced employment through employee spending.
Air travel has allowed many millions of UK residents
to fly to other countries either on holiday, visiting friends
and relatives or to experience other cultures. The ability to
take a flight on holiday is now a firmly established feature of
modern life and is increasingly more available than ever before.
Air travel is no longer the preserve of the rich and privileged
and is firmly within the grasp of the "ordinary working man
and woman". This development brings tremendous social benefit.
Air travel has also made the British culture
and heritage available to foreign travellers with inward travel
now contributing some £13 billion to the UK economy. Inbound
tourism must be encouraged through the maintenance and development
of good and efficient air services, particularly to tap the potential
of all of the regions of the UK and to promote the wide diversity
of their regional history, culture and individuality.
These positive economic and social benefits
must be preserved and built upon for the future. Of course, aviation
must account for its environmental impacts and we fully support
the government in its wish to develop a sustainable future for
aviation that takes account of economic, social and environmental
considerations. However, environmental considerations must not
assume a higher priority than the other strands of sustainability
equation and thereby damage or constrain the very positive benefits
that these deliver for our nation.
AOA believes that it is important to articulate
the very positive benefits that aviation delivers to the UK and
its constituent regions and to reinforce that this sector delivers
considerable benefits to the nation as a whole.
AOA believes that aviation should meet its verifiable
external costs.
5. COMMITTEE'S
QUESTIONS
5.1 "Can the full environmental costs
of aviation be identified? What are the main issues of principle
and methodology difficulties in attempting to do so? Can remote
but potentially catastrophic risks be properly reflected in such
an approach?"
AOA believes that the issue is not one of environmental
cost but rather one of identification and quantification of environmental
impact. As such AOA believes that science will probably be able
to identify and quantify these impacts, particularly at the local
level. Quantification of global impacts, primarily climate change
impact, would appear to be more problematic not necessarily in
terms of sizing of the overall impact but in attributing it to
specific causes eg the impact caused by aviation compared to that
caused by the private motor car or the overall impact of the UK
compared with the US. There is little substantive evidence that
this is anything other than an inexact process.
Translating impact into cost is an economic
exercise and as the discussion paper on "Using Economic Instruments"
so clearly illustrates this process is based around "illustrative"
costs eg "the illustrative cost of carbon is £70 per
tonne, rising at £1 per tonne per annum" and the noted
"uncertainty involved in the estimation of the social cost
of carbon". The only objective of translating impact into
cost in this manner is to convert it to a financial value that
humans can understand and that can be used as a means of trading
or developing economic measures. AOA accepts that even given the
inherent inexactitudes in these costing techniques they are presented
in the discussion paper based upon the "most sophisticated
study" of existing knowledge and understanding of these issues.
AOA is not qualified to offer a definitive view
on whether or not remote or potentially catastrophic risks can
be properly reflected in such an approach, however we believe
that this is no more difficult in the aviation sector than in
any other impacting industry.
5.2 "How comprehensive and accurate are
the environmental costs included in Aviation and the Environment:
Using Economic Instruments and in the Department for Transport's
consultation on the Future Development of Air Transport in the
United Kingdom?"
They are not comprehensive as the discussion
paper only addresses aviation's environmental impact and external
costs relating to climate change, noise and local air quality.
Other environmental impacts such as biodiversity, land take, and
waste disposal, are not addressed. Our views on the accuracy of
the costs identified are covered at 5.1 above.
AOA notes the Committee's view expressed in
the Pre-Budget Report 2002 that the DfT's national consultations
on the Future Development of Air Transport in the United Kingdom
did not "... give adequate weight.... to the environmental
impacts of aviation". This view may be accurate but by the
same token it could be argued that the national consultations
did not give adequate weight to the economic benefits that aviation
delivers. The national consultations enabled a wide and diverse
range of respondents to submit views to government and AOA has
no doubt that those factions that place environmental issues at
the top of their agenda will have made a robust case for detailed
consideration of the environmental impacts.
5.3 "Has the Government defined the correct
environmental policy objective for aviation—that, where
appropriate, the industry should pay for its environmental costs?
How does this relate to the Government's primary objective for
airports—to maximise the significant social and economic
benefits, whilst seeking to minimise the environmental impacts?"
AOA believes that as part of an overall sustainability
strategy, aviation should cover its verifiable external costs.
We also believe that this approach should be repeated in every
industrial sector where there are significant external environmental
impacts.
If government determines that economic instruments
are to be a primary element in this strategy it is essential that
these are not just mechanisms that raise revenue for the Treasury
whilst ignoring the "polluter pays" impacts upon which
they are predicated and leave the industry alone to initiate mitigation
strategies. We believe that the development of a coherent long
term strategy addressing these issues with both industry and government
playing a central and active role is essential to delivering successful
mitigation and compensation for negative environmental impacts
while at the same time ensuring that the positive social and economic
benefits of aviation are preserved and developed further.
5.4 "Would the incorporation of environmental
costs be sufficient to achieve sustainability in the air transport
sector? What additional measures, if any, would need to be taken
if this were to have little impact on growth? To what extent is
there a tension between the policy of incorporating environmental
costs (especially carbon) and the government's long term objective
of a 60% reduction in CO2 by 2050?"
AOA believes that the key to continued sustainability
for aviation is for a policy framework to be developed that allows
social, economic and environmental factors to be taken into account.
Therefore the incorporation of environmental costs in isolation
would not be sufficient to delver sustainability. It would however
represent a significant factor in the process as would the delivery
of capacity to enable the demand for aviation to be met in the
future.
AOA does not believe that the demand for aviation
should be artificially limited or constrained. We cannot accept
that air travel should become socially exclusive with access restricted
to the wealthier sectors of our society. If the all of the stakeholders
in the debate on the future of aviation work towards the development
of a truly sustainable framework for the industry it can deliver
the environmental improvements that society legitimately demands,
enable the capacity required to meet the forecast demand to be
delivered, and continue to contribute to the economic benefits
for regions and the nation as a whole.
Clearly there are significant challenges that
will have to be met if the air transport industry is to continue
to deliver the environmental improvements that it has done over
the last thirty or so years. Aviation must deliver and be seen
to deliver these improvements and initiatives such as that being
progressed by the Advisory Council for Aeronautics in Europe (ACARE)
must be supported. This has set objectives for achieving a 50%
reduction in fuel burn and CO2 emissions and an 80% reduction
in NOx emissions by 2020. It is essential that governments as
well as industry support such initiatives.
With specific reference to the issue of the
UK government's target for a 60% reduction in CO2 emissions by
2050, it has to be noted that this is a target based on all sources.
Of course, aviation has to play its part and AOA is confident
that it will. However, we would also reiterate our view that it
is incumbent on the government to ensure that every industrial
sector plays its full part in this process.
5.5 Given the international context, what
practical options for incorporating environmental costs are really
available to the Treasury and the Department for Transport, and
how should any revenues be used?"
The following options are those favoured by
the AOA for addressing the environmental costs of aviation:
— Emissions Trading (global and open)
is the most obvious and efficient way of most perfectly enforcing
internalisation of impacts.
— Revenue neutral emissions/noise charging
by airports (of airlines) could also effectively motivate airlines
towards more emissions friendly aircraft.
— Non-revenue neutral charging would
also act as a motivator and an appropriately biased source of
funding to be channelled towards mitigating the impacts through
joint airport/community expenditure on appropriate local (and
possibly global) mitigation and/or compensatory measures.
— Road/Airport access charging ("congestion
charging") could be used by the airport/community to fund
appropriate local/public transport initiatives.
April 2003
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