Budget 2011 and Environmental Taxes

Written evidence submitted by TUI Travel PLC

TUI Travel PLC is the world’s leading international leisure travel group operating in approximately 180 countries worldwide. It serves more than 30 million customers in over 27 source markets. Headquartered in the UK, the Group employs approximately 49,000 people and operates a pan-European airline consisting of 143 aircraft.  The company is organised and managed through four business Sectors: Mainstream, Specialist & Activity, Accommodation & Destinations and Emerging Markets. In the financial year ended 30 September 2010 TUI Travel had revenues of £13.5bn and an underlying operating profit before tax of £447m. TUI Travel UK brands include Thomson, First Choice, Hayes & Jarvis, Exodus, LateRooms.com, Crystal and Thomson Airways.

We appreciate the opportunity to respond to the inquiry into the environmental impact of the Budget 2011 and green taxes.

General:

TUI Travel was disappointed that the Budget 2011 did not deliver on the coalition Government’s promise "We will reform taxation of air travel by switching from a per-passenger to a per-plane duty [1] ,……..…".

Additionally we are concerned that the quantum of taxation levied upon travel by air will not assist the Government agenda for growth. Air Transport is a significant driver for the economy supporting 3.8% of UK GDP and providing 963,000 jobs, representing 3.3% of the UK workforce. When tourism is included, these figures rise to 5.7% of UK GDP and 1.5 million or 5.1% of the workforce [2] . While we welcome, therefore, the freezing of APD rates for this year, we are extremely concerned that future updated rises, combined with the introduction of EU ETS will dampen demand for air travel and thus reduce the level of tax paid to the exchequer.

During the recent Travel Matters seminar, organised by ABTA, Justine Greening the Secretary for the Treasury confirmed that the government will retain APD and seek to increase it using RPI. Additionally she also confirmed that when EU Emissions Trading Scheme comes into effect, in January 2012, there will be no corresponding reduction in APD, thus leading to a further taxation of the industry.

In 2007 a DfT study concluded that aviation pays its external environmental costs: since then we have seen two rises in APD with further rises due in 2012, plus the cost of emissions trading. Yet aviation remains the only industry within the UK to pay in full for its own infrastructure, airports and Air Traffic Control services. Yet the taxpayer is subsidising rail and surface transport.

TUI Travel PLC has publicly committed to reducing its airlines‘ direct carbon emissions by 6% by 2013/14 (against a baseline of 2007/08) in terms of total carbon emissions as well as relative carbon emissions, based on 2008/09 operational structure and plans. Thomson Airways is the group’s largest airline.

To assist us to achieve our targets we believe that the Government should explore ways to incentivise the industry to reduce its carbon footprint by way of its taxation policies. For example; to assist in the creation of an infrastructure that supports the development and commercialisation of aviation Biofuel, that is scheduled to be certified later this year, and calculated to offer a significantly lower whole life carbon cost. Whether this can be achieved through tax incentives for investment in the environmental technology or other fiscal measures remains to be seen. We would encourage the use of fiscal measures to assist in the development of aviation biofuels where there are few or no realistic alternatives to kerosene vis a vis road transportation which is subject to legislation to include a percentage of biofuels and has many more options of propulsion available.

Air Passenger Duty:

We appreciate the current consultation on both the banding of APD and how this might be made fairer. We fully intend to respond to that consultation in due course.

Premium Economy:

We believe that it is simply wrong to tax a premium economy passenger the same as if they were in First or Business class having access to a flat bed seat, airport lounge facilities and a limousine service. Our Premium Economy passengers pay a small supplement on their holiday price to upgrade to a seat with extra legroom and giving more comfort, yet do not enjoy the full benefits associated with First or Business class travel.

Per Plane Duty:

We continue to believe that a per plane tax would be the most efficient way of incentivising the efficient use of lower emissions aircraft. For example a per plane tax could be used to incentivise airlines for their investment in new lower fuel emitting aircraft such as the Boeing B737/800 or the Boeing 787 Dreamliner that use 15% & 20% less fuel respectively per passenger km and thus be more carbon efficient (in the case of the Dreamliner, these are forecast savings). Leisure airlines, such as Thomson Airways, already have a lower carbon per passenger per km footprint than many of its rival scheduled and low cost carriers, because of the high density seating, higher load factors and extensive fuel conservation activities deployed over many years.

We understand, but do not share Government’s concern that a per plane tax may be unlawful in that it may breach the Chicago Convention and associated bilateral agreements. We had suggested to Government that the method used to calculate a per plane tax should be based upon the methodology used to calculate sums due under EU ETS. On this basis we had assumed that a per plane duty would be as robust, from a legal perspective, as EU ETS. In any event we would urge the government to follow through with its undertaking to seek international agreement for any necessary changes to be made in the Chicago Convention and to introduce a per plane tax without delay once the perceived legal impediments have been removed.

Business incentives for low carbon fuels:

Five years ago the general consensus was that sustainable aviation biofuels were 15 to 20 years away and therefore both UK and EU government policy has been to concentrate on and to incentivise investment and research into surface transport biofuels. The reality is that sustainable aviation biofuels are scheduled to be certified later this year. It follows that the sector desperately needs the right incentives and tax breaks to enable a sustainable jet biofuel infrastructure to be created that will in turn deliver significant reductions in aviation CO2 emissions over the next 5 to 10 years, well ahead of those predicted as little as 5 years ago.

Government tax policy needs to be adjusted to take account of the significant early development of sustainable aviation biofuels.

Conclusion:

TUI Travel PLC welcomes the current consultation on APD reform; however we continue to believe that the Government tax policies should be designed to incentivise airlines to invest in more fuel efficient aircraft and to incentivise the more efficient use of fuel efficient aircraft. Such an approach, we believe, would help the Government to meet its own environmental goals.

The government should commit to moving to a per plane duty once it has established that there are no legal impediments to so doing. The government should explore ways to incentivise investment in new technology, particularly in the creation of a sustainable Biofuel infrastructure. TUI Travel PLC wishes to be part of any consultation on changes to environmental taxation and will work with the appropriate government departments.

20 April 2011