Budget 2011 and Environmental Taxes

Written evidence submitted by the British Air Line Pilots’ Association

Executive Summary

1. The British Airline Pilots’ Association (BALPA) is not indifferent to the environmental impact of our industry, but believes that Air Passenger Duty (APD) is a poorly designed tax which will continue to do nothing to tackle carbon emissions. APD is not an environmental tax, and there is evidence that it can and will actually encourage activity which will increase carbon emissions. But there are ways that the Government and industry could work together to make flying more efficient and reduce carbon emissions.

About BALPA

2. Over 80% of the UK’s commercial pilots are members of BALPA and we are recognised as the main partner in 26 airlines covering all major UK operations. In addition over 1,000 commercial pilots have joined us even though their airline has no partnership agreement with BALPA and this includes a swath of Ryanair pilots.

3. BALPA was formed in 1937 following the antics of the CEO of Imperial Airways who was forcing professional pilots to operate when it was not, in the professional judgment of those pilots, safe to do so. This led to the Cadman report. Those origins remain a key feature of our DNA today and which is why our vision as an association is still "to make every flight a safe flight". It is also perhaps why a recent public poll by YouGov found that airline pilots belonged to one of the most trusted professions. It is a responsibility we take seriously.

Setting aviation’s environmental impact in context

4. BALPA is certainly not indifferent to the impact that aviation has on the environment. We believe that there is scope for the industry to reduce its carbon emissions, and do more to promote efficiency. This submission will go on to suggest ways of doing that, but it is important to set the industry’s impact on the environment in context. Of all polluting industries and activities, aviation is far from the worst.

5. 2005 figures show that domestic flying accounts for 0.4% of the UK’s CO2 emissions by source [1] . If we grounded every flight in the UK it would cut global man-made CO2 by 0.1% [2] . Adding domestic and international aviation emissions together accounts for approximately 6% of UK CO2 emissions compared to 31.1% from power stations and 21.6% from road transport [3] .

The Government’s aviation policy

6. The Government has acknowledged the importance of aviation to the UK economy and to the lives of a huge number of people in the UK.

7. The Government has recently stated, ‘Air transport provides the international connectivity the country needs to succeed in a competitive global economy. It makes possible long-distance travel that connects the remoter regions of the UK and connects the UK to other countries. It enables people to travel for business, for employment, for leisure, and to visit friends and family, and it enables business to transport goods rapidly to and from markets overseas.’ [4]

8. HM Treasury has made the case for the economic importance of aviation too: ‘The importance of a strong and healthy aviation sector to the UK economy is evident from the economic data. In 2009 aviation contributed around £18 billion to UK output and represented around 2 per cent of gross value added. The sector employs over 250,000 workers directly and supports an estimated 200,000 additional jobs through the supply chain.’ [5]

9. We agree with the Government on the importance of air transport to the UK’s economy. We believe air travel is a force for good and its growth has supported businesses, increased the ability of families to maintain contact across continents, provided thousands of extra jobs and held down prices.

10. However, we do not believe that the Government is clear about whether, in spite of the acknowledged importance of aviation, it sees its aviation taxation policy as a way of constraining growth in the industry by discouraging flying or whether it sees it as merely a revenue-raising instrument which has no negative impacts on the economy.

11. For instance in the introduction to Reform of Air Passenger Duty: a consultation one of the Government’s objectives is to establish ‘…a simple tax system for air transport services in the UK, which does not hamper growth…" [6] [emphasis added] and yet often talk of APD is couched in environmental terms which can only mean constraining the sector.

12. If the Government does see aviation taxation as an environmental tax then we would have severe doubts about the effectiveness of the current regime.

The concept of Air Passenger Duty

13. The intended nature of APD is a fundamental question and we are sure it is one that the committee will be keen to examine: does the Government intend APD to be an environmental tax in order to restrict growth in the industry or is it intended simply to raise much-needed revenue for HM Treasury?

14. If the intention is to constrain the industry we do not believe that is a proportional response given its importance to the economy, its role as a social good and its contribution to CO2 emissions vis-à-vis other sectors.

15. In any case, the impact of APD has been and will to be to encourage passengers to look for ways of avoiding the tax which can, in fact, encourage behaviour which would increase carbon emissions (see Global action and international competitiveness below)

16. Any effort to restrict the industry from growing by means of fiscal policy and/or capacity constraints will also have the effect of forcing up prices (again, see Global action and international competitiveness below).

17. APD is necessarily a very blunt tool to effect behavioural change, if that is the goal. The banding structure is very crude and, as mentioned elsewhere in this document, bears insufficient relation to the true environmental cost of the flight.

18. And we do not believe that APD is a fair tax. Indeed, we have previously suggested that APD is the ‘poll tax of the skies’ [7] . The overall cost of APD on an airline fare is often very significant, it does not apply equally to all carriers, it penalises UK passengers harshly compared with passengers from other EU countries, there is a concern about the taxation levels for different cabins (premium economy passengers are taxed at the same amount as first class passengers), and it bears no relation to the efficiency of the aircraft flown.

Global action and international competitiveness

19. More than possibly any other industry aviation has a global context. Not only is our business inherently international in nature, but we will never be able to tackle climate change without working with other countries and international bodies.

20. We acknowledge the legal difficulty reconciling the desire to link taxation to carbon emissions given the UK’s commitments under the Chicago Convention but we believe that more should be done to investigate this avenue which would be a much fairer way to take account of aviation’s true externalities. For instance, we would be broadly supportive of an international, global emissions trading scheme.

21. It is important to note that the UK is in competition with other EU countries for air transport business. Flying from UK regional airports to Amsterdam for example to connect onwards is becoming an ever more attractive proposition for many due to Schiphol Airport’s 5 runways, 264 destinations and no aviation taxation (compared to Heathrow’s 2 runways, 183 destinations and the highest aviation tax in Europe).

22. In a recent poll for BALPA 76% of people said that they would prefer to transfer via Amsterdam if it meant saving £85. [8] This is rational behaviour which would actually increase the amount of CO2 emissions and is an unintended consequence of APD and capacity constraints in the UK.

23. We are pleased that the Government is reviewing Air Passenger Duty and has published a consultation document on that basis. However, we think that this is a missed opportunity for a more fundamental review of aviation taxation; one which really considers how best to reduce aviation’s contribution to climate change while not penalising people who want to enjoy a holiday or visit friends and family. We believe that is possible.

Alternative ways of reducing carbon emissions

24. BALPA supports aviation’s inclusion into the European Union Emissions Trading Scheme (EU ETS) but like many parts of the industry is concerned about the double taxation situation that will come about with both EU ETS and APD forming part of the ticket price.

25. Putting a price on carbon, which is what EU ETS effectively does, incentivises carriers to operate more efficient aircraft more efficiently. ETS provides a far better approximation of the externalities of flying and links that to a financial penalty.

26. Development of new technologies will continue to be the main and fairest way to tackle climate change across the board including in respect of aviation. To that end we would encourage the Government to look at using some of the revenue it generates from APD to off-set the industry’s carbon emissions and also to provide material incentives to airlines and manufacturers to invest in research and development and new technologies as a long-term solution.

27. The International Air Transport Association (IATA) estimates that Air Passenger Duty produces enough revenue for HM Government to offset all of the UK’s flights four times over [9] .

28. We believe doing this would make APD a more palatable tax for the many millions of business, individuals and families who pay it every year. Indeed, encouraging research and development into these new technologies would be a massive boost to UK industries such as Rolls Royce and academic institutions which are very much at the global cutting edge in this area.

29. There are other things that could be done relatively easily to improve efficiency. We would support making the airways as efficient as possible by providing more direct routings. The introduction of the Single European Sky should encourage this type of direct routing more and more.

30. Mixed-mode operations at airports – notably Heathrow – would reduce hold times and provide a more efficient operation.

31. And increasing the capacity of Heathrow, which among UK airports suffers the most from being overcrowded, would relieve the situation of many aircraft having to circle for many minutes before commencing their approach, needlessly burning fuel and releasing additional carbon emissions. This is a notorious problem for carriers and passengers alike, especially during peak times.

Overall level of taxation

32. As stated above, the current level of taxation on the industry is sufficient to off-set its impact on the environment several times over. The industry more than accounts for its environmental impact.

33. The impact of APD on an average family can be very substantial indeed. Take as an example a family of four travelling from the UK to the Caribbean to visit family. If the family chooses to book seats in a ‘premium economy’ cabin they will pay £656 in Air Passenger Duty from April 2012 on top of the air fare.

34. It is also worth noting as a side issue that the family would pay the same amount in taxation if they were travelling on the same route in a First Class cabin.

35. BALPA believes that the current level of APD is very high and is an excessive burden on many families who wish to enjoy a holiday or visit friends or family.

36. While we recognise the Government’s need for revenue we do not believe it is fair to expect families, individuals and businesses to pay ever-increasing amounts for their flights when doing so will have no direct impact on carbon emissions unless there is a significant change of policy on carbon off-setting.

37. The overall price of tickets is also likely to increase with the introduction of aviation into the EU ETS which will place further burdens on people wishing to travel.

38. And contrary to those who claim that aviation in an under-taxed industry, it is important to remember that the aviation industry pays for all of its own infrastructure costs (airports, air traffic control, security) which other industries have subsidised.

39. We believe the overall level of taxation is placing an undue burden on the industry and on passengers. There is a feeling that aviation is being squeezed until the pips squeak.

Conclusion

40. Air Passenger Duty is not an environmental tax. It may hamper growth in the UK aviation market – whether by design or not – but the impact of that will not be a reduction in global carbon emissions. Passengers will be more likely to connect to long-haul flights in European hubs. Such activity is likely to actually increase the amount of carbon emitted while adversely hitting the UK-aviation industry which the UK Government has acknowledged is so important.

41. The Government often reaffirms its central aim which is to encourage economic growth. BALPA believes that substantial reform of APD, and dedication of that revenue to research and development into new technologies, would assist in that laudable aim while doing much more to tackle aviation carbon emissions than the current regime.

42. We hope that BALPA’s submission is of use to the Committee. We believe pilots have unique points of view with regard to this issue and would be happy to provide more practical ideas about ways the industry can be more efficient to the Committee in the future.

28 April 2011