Budget 2011 and Environmental Taxes

Written evidence submitted by the Caribbean Tourism Organisation

The Caribbean Tourism Organisation

The Caribbean Tourism Organisation (CTO ) comprises 33 member countries in the English , French, Spanish and Dutch speaking Caribbean . It is headquartered in Barbados . It has on its board the Ministers of Tourism of each of the 33 countries that it represents as well as private sector allied members . The current Chairman of the Board is the Minister of Tourism for St Kit t s and Nevis.

The CTO’s role is to help establish tourism as a sustainable means of social and economic development for the Caribbean and to safeguard the industry’s interests in the region and internationally.

Executive Summary

The following short submission from CTO observes that:

· Taxes, including ‘green’ taxes, related to international travel have a significant impact on other countries. In such cases their effect should be fully taken into consideration before they are introduced or reformed.

· Greater consideration should be given to the extra-territorial impact of taxes such as Air Passenger Duty (APD) on the sustainable development of other countries.

· When aviation is included in the EU Emissions Trading System (EU ETS) in 2012, CO2 emissions will be covered by that scheme. Air Passenger Duty (APD) will then become a general taxation measure rather than a green one.

· If the UK Government’s objectives for APD are revenue driven rather than related to the environment, labelling APD as a green tax is misleading to consumers including those travelling to the Caribbean region.

· More could be done to harness the opportunity to use UK expertise in green technology to develop business partnership opportunities in the Caribbean that relate to climate change.

Written Evidence

1. Sustainable development and environmental protection aspects of the UK Plan for Growth

The UK’s Plan for Growth recognises Britain’s expertise in green technology and related industries. The Caribbean, like many other developing regions, has a significant requirement for green technology in relation to climate change adaptation. It would benefit from collaboration with UK companies in this field. There would be value in considering how UK companies might be encouraged or incentivised to develop business partnership opportunities overseas for the benefit of the UK companies and the Caribbean.

2. Shifting the burden of taxation from ‘goods’ (e.g. labour) to ‘bads’ (e.g. emissions) needs to be better considered when designing and introducing new taxes affecting aviation

The UK Treasury’s APD consultation document details the Government’s belief that market based approaches to emissions such as the EU Emissions Trading System (EU ETS) are the best way to address CO2 emissions. The CTO agrees with this as an overall global approach but believes that such policies should not be developed unilaterally. It hopes that a fair global system will soon be developed that places all airlines and countries on a level playing field. Without this, tourism dependent regions such as the Caribbean that as a result of changing European policy have had to migrate from preferential agricultural arrangements to an industry that is based on its environment, tourism, will be unfairly discriminated against.

If as UK Ministers now suggest APD is a revenue raising rather than an environmental tool, then this is a tax on people taking holidays, visiting friends and relatives or making business trips or ‘goods’ ,rather than emissions - ‘bads’.

The Government states that it sees APD primarily as a revenue raising measure. Therefore, the CTO does not believe that APD should any longer be classified as a green tax as this misleads consumers about the intention of the tax, which is essentially a tax on people taking flights for the purpose of raising government revenue.

3. The scope for the tax system to create modal shift from high carbon transportation to low carbon alternatives are issues the government should be considering when developing strategies for sustainable aviation

Over 70 per cent of flights taken from the UK each year are to short haul destinations in Europe. Given that some of these short haul journeys are the only ones that can realistically be replaced by lower carbon alternatives such as high speeds trains, it seems perverse that the Air Passenger Duty on flights to short haul destinations is significantly lower than to anywhere else.

There is no possible modal shift to lower carbon transportation to the Caribbean as there is no way other than by flying to reach the Caribbean - the most tourism dependent region in the world. CTO has noted an increasing tendency for passengers to route their flights via European hubs to avoid the higher rates of APD. There is therefore the paradox that by increasing rates beyond a certain point the UK may, by encouraging diversionary measures, increase carbon emissions from international aviation. This risk was recognised by the UK Parliament’s Committee on Climate Change in its December 2009 Report, which noted that "action at European level is required in order to avoid leakage from UK airports to hubs in other Member States"

4. The impact of the taxation system in general on sustainable development

The CTO wishes to draw attention to the extraterritorial impact of aviation taxation. The attached report produced by the CTO on the impact of Air Passenger Duty was compiled at the request of the UK government and presented in November 2010. It demonstrates clearly, using World Bank Development Indicators, that the Caribbean is the most tourism dependent region in the world.

The report, using a wide range of data, suggested that since the 2009 significant increase in APD rates, tourism arrivals to the Caribbean from the UK had decreased by as much as 16% compared to increased arrivals to the Caribbean from all other source markets.

There is no readily available economic substitute for the tourism industry in the region. Caribbean economies depend on tourism for government revenue through taxation on hotels and other tourism related services, for employment, for economic growth and GDP, and for investment attraction.

As many as 1 in 4 jobs in some Caribbean countries are related to tourism, and in some countries tourism accounts for as much as 80% of GDP. Therefore, anything that negatively impacts the tourism industry and the UK companies which serve it will have a serious impact on the sustainable development of the region. This should be considered alongside the fact that the Caribbean, although a low carbon emitter, is recognised as one of the regions most at threat from climate change.

The CTO believes that the extra-territorial impact – both economic and environmental – of tax policies related to international travel or the environment needs to be carefully considered in order to avoid unintended consequences.

In the case of APD, the unintended consequences are already evident and it is to be hoped that the APD consultation being undertaken by the UK Treasury will result in a fairer system that will be implemented with haste.

UK policy on aviation and the environment is having a detrimental impact on Caribbean development and the longer it takes to reform the APD system, the greater the risk of serious economic decline in the industry that now underwrites almost all Caribbean economies.

5. Green Investment Bank (GIB)

The CTO understands that the GIB fund will be used to support low carbon investment. Given that income from taxes that are labelled environmental (APD and the EU ETS), and in the name of global carbon emissions reductions, CTO would urge consideration be given to the GIB providing support to UK companies that wish to develop innovative low carbon projects in developing regions such as the Caribbean.

19 April 2011