Written evidence from British Airways
plc (TE 91)
INTRODUCTION
British Airways welcomes the opportunity to submit
evidence to the House of Commons Transport Select Committee's
inquiry into "Transport and the Economy".
British Airways is one of the world's largest international
airlines, carrying almost 32 million passengers worldwide on almost
750 daily flights in the financial year to 31 March 2010. The
airline employs 40,000 people, the vast majority of these at its
sites throughout the UK.
The airline's two main operating bases are London's
Heathrow and Gatwick airports, with a smaller base at London City
airport serving New York and European business destinations.
From these, British Airways flies 238 aircraft to 155 destinations
in 70 countries. In addition to passengers, the airline also
transported 760,000 tonnes of cargo around the globe.
OVERVIEW
1. Whilst the UK faces a record fiscal deficit
that must be addressed, Government needs to ensure that it prioritises
areas that most support economic growth. This should include
physical infrastructure schemes that provide the greatest long-term
benefit to the economic growth and success of the UK.
2. It requires a clear analysis of the country's
strategic transport needs and the creation of a robust analytical
framework to identify the transport projects that will make the
greatest contribution to GDP so that these projects can be prioritised.
3. The methodology used to measure the net benefits
of proposed transport schemes should be modified to include not
only welfare benefits to users but an analysis of wider economic
effects schemes would bring, particularly agglomeration benefits.
4. It is also important that the streamlining
of the planning system that was to be delivered through the Independent
Planning Commission is not lost by the changes that will be introduced
by the Coalition if private funding is to be found for the strategic
schemes identified.
5. The Government has a key role to play in creating
a modern integrated transport network for the UK by investing
in the necessary infrastructure where required and by setting
a clear vision and policy framework to attract private investment
for other projects.
6. Aviation is a clear enabler of economic growth.
However, the UK's international gateways are full. Aviation infrastructure
is and can continue to be privately funded, which means that the
economic benefits associated with its delivery can be realised
without being a burden on the public purse.
7. However, a clear national policy framework
is a pre-requisite to enable investment in the infrastructure
necessary to enable the UK's air connections to the world keep
pace with those of its competitors and support the key drivers
of growth, including inward investment, exports and tourism. Without
a clear national policy, investment in the physical infrastructure
needed to ensure the UK's strategic transport needs are met will
not take place in a timely way.
8. In addition to infrastructure investment the
Committee should also consider the effect of aviation tax policies
on connectivity and the economy.
TRANSPORT INFRASTRUCTURE
REMAINS CRITICAL
TO SECURING
GROWTH
9. Economic conditions have materially changed
since 2006. Growth has slowed significantly and the UK economic
deficit has risen accordingly. Budgetary constraints are being
applied across all sectors of the economy, and a far-reaching
review of Government spending is underway.
10. What has not changed is the urgent need to
improve the UK's transport infrastructure. The Eddington Report
recognised that "a comprehensive and high-performing transport
system is an important enabler of sustained economic prosperity."
A good transport system is even more critical today to maintain
and improve local, regional, national and international connections
and to ensure UK targets for a trade-led recovery and future growth
are met.
11. Sir Rod's report highlighted that in countries
with well-developed transport networks, it is transport constraints
that are most likely to impact upon a nation's productivity and
competitiveness. Thus it is arguably more important today that
transport spending continues at the levels previously planned
to facilitate the much-needed growth in the UK economy.
12. It is clear that difficult choices will need
to be made in relation to public funding of transport policy.
This will require a clear analysis of the country's strategic
transport needs and the creation of a robust analytical framework
to identify the transport projects that will make the greatest
contribution to GDP so that these projects can be prioritised.
13. For example, a modern integrated transport
network for the UK is vital. Connecting international gateways
to national transport infrastructure would produce significant
benefits for the UK. At Heathrow schemes such as Crossrail and
Airtrack, which will enhance connectivity, should be a priority.
Furthermore schemes such as High Speed Two should look to connect
to key international gateways, such as Heathrow Airport and High
Speed One, in order to realise the maximum benefits for the UK.
These must be considered as part of the "big picture"
when considering the transport projects that should be advanced.
14. The future health of the UK economy will
depend on encouraging inward investment, growing its international
trading links, both with existing trading partners and with emerging
economies such as China and India and diversifying from its dependence
on the financial services sector.
15. Aviation is a key enabler to achieving this
aim. But the UK international gateways are full and it is clear
that substantial new capacity will be needed to meet the demands
of a growing economy.
16. As aviation self-funds all its infrastructure,
development and operational costs without recourse to the public
purse, the ability to provide the necessary infrastructure is
less constrained by public spending priorities than in publicly
funded transport segments. However, private investment cannot
come forward without a clear policy framework. There is a great
need for a clear policy that articulates how the UK's international
gateways should be sustainably developed to maintain and improve
the necessary connections between the UK and the world to support
growth through inward investment, exports and tourism.
17. As recently highlighted by the Prime Minister,
tourism is a significant sector of the UK economy and is to be
encouraged to grow. Britain attracts millions of inbound visitors
each year, and in 2009, three quarters of them arrived by air.
These overseas visitors spent nearly £14 billion in the
UK last year, and many were from places realistically accessible
only by air journeys, such as North America, Japan, South Asia,
the Middle East and Australasia.
PRIORITISING THE
SCHEMES THAT
WILL MOST
CONTRIBUTE TO
GROWTH
18. The public transport spending priorities
set out in the Eddington Report in 2006 remain valid. Government
should focus action and spending on those parts of the system
where networks are critical in supporting economic growth, and
where there are clear signals that they are under-performing.
It must be concentrated on the areas that will generate the greatest
economic benefits - not just to transport, but also for business,
housing, new inter-regional connections and growth.
19. Transport projects should be prioritised
based on their long-term contribution to the economy. One of
the issues that the Committee should examine in this context is
whether improvements can be made to the framework used by Government
to identify which projects contribute most to growth. The methodology
currently used to assess the benefits of proposed transport schemes
appears to be narrowly based on direct benefit to users. Whilst
this is clearly important, it ignores the wider economic impacts
that can result from transport schemes, such as agglomeration
impacts.
20. Similarly, we invite the Committee to assess
the extent to which the methodology used in setting tax policy
considers the impact on transport, the economy and the quality
of air links between the UK and world. Tax policy has a direct
impact not only the UK aviation industry, but on connectivity,
both at national and regional level. In considering tax changes,
it is important to assess the wider economic, competitive and
social impacts. (See Appendix A.)
21. Among the strategic priorities for long-term
transport policy identified in 2006, key international gateways
that are heavily congested and unreliable must remain a focus
for Government, particularly as the current constraints on the
UK's international aviation gateway have the potential to hold
back economic growth.
22. All regions of the UK benefit from London
Heathrow's status as one of the leading transport hubs in Europe.
UK connectivity to all parts of the globe, although falling behind
that of its major competitors, is a key attraction for overseas
businesses looking to relocate or invest in the EU and a major
benefit to British companies trading worldwide.
23. In 2006, the Oxford Economic Forecasting
(OEF) study, "The Economic Contribution of the Aviation Industry
in the UK", established that "aviation is a substantial
UK industry in its own right. But its key contribution to the
UK economy is in helping other sectors to operate more efficiently
and to compete in the global economy, supporting productivity
and economic growth across UK plc as a whole."
24. Demand for flights will grow. The question
is how the UK Government proposes to encourage aviation to meet
this increased demand and ensure the prosperity of the UK economy,
London and the regions.
25. European (and Middle Eastern) hubs are expanding
whilst the UK's main international gateways are not. European
economies will benefit at our expense. It is no accident that
three of the most successful European nations - Germany, France
and the Netherlands - are home to the three most successful European
intermodal transport hubs at Frankfurt, Paris and Amsterdam.
26. Although both the Eddington Report and the
OEF study were published in 2006, the premise of both - that aviation
is a key economic driver - is stronger today as the Government
seeks an export-led recovery for the UK.
LONG-TERM
PHYSICAL INFRASTRUCTURE
SHOULD BE
PRIORITISED.
27. Eddington identified that "the economic
case for targeted new infrastructure is strong and offers very
high returns………….the Government should therefore
continue to deliver, together with the private sector, sustained
transport investment".
28. Given the scarcity of resources, for publicly
funded projects these should be focused on physical infrastructure.
As the OEF recognised, such projects increase long-term economic
output more than any other kind of physical investment.
29. Where it is possible for that infrastructure
to be built entirely with private funding or with private contributions
(such as in aviation) this should be given policy support.
30. The UK aviation sector is a successful industry
in its own right and as an economic driver for the UK economy.
There is no capital expenditure by Government on aviation itself;
it is an entirely privately funded industry, free of public subsidy.
The industry recognises that it is crucial to maintain investment
for its long-term future, despite the downturn in economic conditions.
31. For example, the regulatory environment means
that the capital expenditure programme for Heathrow that was agreed
in the 2008 quinquennial settlement remains in place. Between
2008 and 2013, £4.5 billion of committed capital expenditure
will be delivered. This includes replacing existing infrastructure
and the construction of the new Heathrow East Terminal; major
operational changes following the cessation of the Cranford Agreement;
and enhanced public transport access and connectivity for the
UK's key global international hub airport.
32. However, it is vital that the publicly funded
investment in key long-term surface access transport projects
that will increase access to international gateways should be
maintained. The key European intermodal transport hubs mentioned
above have recognised this and are expanding surface access facilities
at the same time as the core infrastructure. In the UK, the Crossrail
and Airtrack schemes, and maintaining the direct Gatwick Express-Victoria
link, are just three examples of important public transport projects
that will bring wider economic benefits to their regions and should
be prioritised.
33. Furthermore, direct links between the proposed
High Speed Rail 2 network and the country's international gateways
must be agreed. It is estimated that the HSR2 section between
London and Birmingham alone will not be operational until 2026
at the earliest, and it will cost £16-£17 billion.
The proposals to serve Manchester and Leeds will cost an estimated
£30 billion of public money.
NEW PLANNING
SYSTEM MUST
BE STREAMLINED
34. The absence of regional bodies and the abolition
of regional spatial strategies are a significant concern for transport
providers and strategists. Major transport investment projects
are not generally confined to local areas in either impact or
benefit, and many operate across regional boundaries e.g. rail
and road schemes. We seek answers from Government as to the next
steps.
35. With the abolition of regional bodies and
the Independent Planning Commission, it is not clear what mechanisms
or organisations will assume responsibility for investment, economic
and wider planning issues. Local partnerships are being encouraged,
but inter-urban and inter-regional benefits will no longer be
championed for large-scale projects. A localism agenda pursued
at all costs will be detrimental to strategic transport planning.
36. Whilst we recognise the Government's decision
to change the system put in place in 2008, it is important that
the changes be done quickly and that the benefits of a more streamlined
and faster process for the approval of major infrastructure projects
should not be lost.
37. Furthermore, the lack of a National Policy
Statement for aviation leaves the industry without a coherent
policy for the future direction of aviation in the UK. The Government
has yet to demonstrate that it has adequate structures in place
to progress major transport infrastructure projects through the
new planning system.
38. Investment in aviation is necessarily long-term,
from the building of infrastructure to the introduction of new
technology to the purchase of new aircraft. Major projects do
not happen in the short-term nor come cheaply. Without strategic
direction and clear guidance on what the UK aviation industry
will be in 10 or 20 years, the industry's ability to sustain and
assist the growth of the UK economy will be seriously curtailed.
APPENDIX A
IMPACT OF TAX POLICY ON UK CONNECTIVITY AND
GROWTH
A1. Tax policy has a direct impact not only the
UK aviation industry, but on connectivity, both at national and
regional level. In considering tax changes, it is important to
assess the wider economic, competitive and social impacts.
A2. Factors that should be included in any assessment
of taxation proposals should include the impact of the measure
on the number of quality and connections to and from the UK, on
costs of UK exporters and importers and on the social aspects
of access by the public to flying as well as the direct impact
on the UK aviation industry.
A3. In that context we note that the proposals
for a move to a per plane tax would drive transfer passengers
to other European hubs, thus endangering many direct longhaul
routes from the UK that are only sustainable because of transfer
passenger feed.
A4. Furthermore, moving to a per plane tax will
be damaging to UK exporters and importers. It is expected that
specialist freight handlers will simply avoid the UK and transfer
operations to continental airports where taxation levels are far
lower. This will result in limited options and increased delays
for UK manufacturers and producers, as goods are transported by
road to Europe for onward distribution.
A5. 30% of the UK's exports by value are transported
by air. In 2009-10, British Airways flew 760,000 tonnes of cargo,
much of it direct transhipments. The cost of a per plane tax
will be passed to the customer, making the goods-to-market more
expensive for supplier, shipper and consumer.
A6. It is vital that the methodology used in
evaluating the impact of aviation tax policy extends beyond the
narrow assessment of how much revenue could be raised.
September 2010
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