Written evidence submitted by British
British Airways welcomes the opportunity to contribute
to the Committee's inquiry"Budget 2011 and Green Taxes."
British Airways is one of the world's largest international
airlines, carrying almost 32 million passengers worldwide on around
750 daily flights in the financial year to 31 March 2010. The
airline employs almost 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 237 aircraft to 152 destinations
in 75 countries. In addition to passengers, the airline also transports
cargo. In the last recorded full year of 2009-10, it carried 760,000
tonnes of cargo around the globe.
In 2010, the airline completed its merger with Iberia
of Spain to create the International Airlines Group (IAG). Our
combined business offers flights to 205 destinations throughout
the world on a fleet of 415 aircraft. It also commenced a joint
business agreement with American Airlines, which further extends
the benefits for its customers. The combined network of British
Airways, Iberia and American Airlines serves 433 destinations
in 105 countries with more than 5,180 daily departures.
1.1 Air Passenger Duty (APD) was introduced in
the UK in 1994 as an environmental tax but is regarded today as
a general revenue raising tax.
1.2 Aviation is a key driver of economic growth
but taxation of the industry is a tax on UK growth, on UK business
and on UK families.
1.3 Taxes are recognised as being ineffective
in reducing aviation emissions. The aviation industry agrees with
the UK Government that an international solution based on emissions
trading is the most effective approach and as a first step, aviation
joins the EU Emissions Trading Scheme in January 2012.
1.4 Adjusting the design of aviation taxes will
not improve their environmental effectiveness, but can significantly
worsen their impact on the economy, jobs and the competitive position
for airlines. We therefore welcome the decision not to introduce
a per-plane tax.
1.5 Only three other major EU countries levy
some form of air passenger/travel taxGermany, Austria and
France. The Dutch and Irish governments have recently acknowledged
the impact of aviation taxation in their economies and scrapped
1.6 UK APD raises almost three times more than
the second highest charging nation, Germany, and 35 times more
than Austria, where implementation of the tax for 2011 was delayed.
1.7 The UK aviation industry has an established
track record in improving its environmental performance and is
seen as a world-leader in this field. Continual innovation, new
technologies and ongoing operational improvements are fundamental
to its existence today.
1.8 "Sustainable Aviation", a UK coalition
of aircraft and engine manufacturers, airlines, airports and air
traffic service providers, is committed to improve the performance
of the industry and to minimise its impact on the environment.
1.9 With a multi-billion dollar fuel bill annually,
airlines already have a major incentive to be as fuel-efficient
as possible. An over-layering of policies and taxes that create
an uncompetitive tax regime will only damage efforts to improve
its environmental performance.
1.10 The oft-repeated statement that aircraft
fly around "half-empty" is a myth. The average load
factors for UK-departing aircraft are high: in 2010, the CAA reported
seat occupancy of around 80.9%. Airlines further utilise spare
weight capacity of aircraft by carrying "belly-hold"
freight in addition to passengers.
2. UK AVIATION
2.1 In 2010-11, Air Passenger Duty is projected
to raise £2.2 billion in revenue. By 2014-15, this is expected
to rise to £3.6 billion.
2.2 UK air passengers are being taxed more than
bankers. This tax on aviation raises more than the bank levy over
the period 2010-11 to 2015-16, as forecast by the Office for Budget
Responsibility in its "Economic and Fiscal Outlook"
published on 29 November 2010.
2.3 British Airways recognises the exceptional
difficulty of the country's fiscal position and we are content
to pay our fair share. But the UK airline industry is already
the most heavily taxed in the world and any further tax burden
would be counterproductive to the country's economic recovery.
2.4 The raison d'etre of any airline is to transport
passengers between two points as safely, securely and profitably
as possible. To do this, they must perform as efficiently as they
can, despite constraints in the operating environment beyond their
control that hamper them daily. These constraints include inefficient
air traffic management systems in Europe; a shortage of runway
and airfield capacity at South East airports; international competitive
distortions; and a level of taxation that fails to recognise that
profitability is vital for investment in new technologies that
will reduce the environmental impact of the industry.
2.5 To date, UK aviation has been a success story,
leading the way in a deregulated European aviation market with
more competition, constant innovation and relative operational
effectiveness to minimise the impact of these constraints. UK
airlines have taken the leading role in worldwide environmental
issues, and are instrumental in developing a global framework
for dealing with the industry's carbon emissions.
2.6 Importantly, UK aviation pays for its own
infrastructure. It receives no public subsidy. It pays for the
airports, air traffic control and its own regulator. It generated
£11.4 billion to the UK's GDP in 2004 and currently supports
2.7 But faced with increased taxation and competitive
disadvantages compared to its European neighbours and those based
in the Gulf, UK airlines will find it harder to grow and develop
new markets, routes and connectivity. And the impact will be felt
across the entire UK economy.
2.8 If the UK is to be better connected to the
world, especially to the emerging markets, and if UK airlines
are to compete responsibly for this growth, then we need to be
able to invest in new aircraft for the future. Major technological
developments are reducing the environmental impact of flyingas
well as being more fuel-efficient and reducing emissions, new
aircraft are significantly quieter than the aircraft they replace.
If the UK airline industry continues to be taxed at current levels,
then this investment in new aircraft and technology is at risk.
3.1 It is vital when designing and introducing
unilateral green taxes that full consideration is given to the
UK economy's competitiveness and need for connectivity to the
3.2 Any tax that imposes disproportionate financial
burdens on UK airlines (and thus the UK economy and business)
and introduces competitive distortion for the country's aviation
industry must be resisted. British Airways welcomes the Government's
decision, announced in the 2011 Budget, to abandon plans to replace
APD with a per plane tax, which would have reduced UK competitiveness;
curtailed connectivity to international markets; and encouraged
more shorthaul flights to European hubs while doing nothing to
improve the environmental impacts of flying.
3.3 When considering "green taxes",
consideration must be given to the structure of the industry targeted.
In aviation, the cost and lead times for new aircraft, expected
to last 20 years or so, are extensive. They cost many tens of
millions of pounds and deliveries and replacements are often delayed
because of manufacturing schedules and problems, training and
3.4 It is crucial that there is recognition that
aviation is an international industry. No other country taxes
aviation to the same level as the UK. It is universally acknowledged
that aviation is a key driver of economic growth. Indeed, China
has announced plans to construct more than 40 new airports, many
with multi-runways, throughout the country over the next 20 years.
UK aviation taxation fails to take account of the international
setting and instead, together with visa restrictions, incentivises
the development of air links from rival EU hubs to China and other
emerging economies to the detriment of the UK economy and trade.
4.1 Aviation taxation is generally ineffective
in reducing emissions. Some modes of tax, such as the proposed
per plane tax, are considerably worse than others in their negative
consequences for the UK economy's competitiveness and connectivity.
4.2 British Airways agrees with the UK Government's
position that emissions trading is the most cost-effective policy
instrument to reduce aviation's carbon emissions.
Taxes on aviation, no matter how they are designed, have been
shown to be extremely ineffective in reducing emissions.
4.3 Emissions trading has a guaranteed environmental
outcomeas defined by the emissions target set for aviation
and the overall limitation placed on emissions through international
4.4 Emissions trading ensures that the sector
is able to meet its obligations and make a significant contribution
to emissions reductions by a combination of efficiency improvements
from within aviation and purchase of certified reductions in other
4.5 It is sensible and reasonable for aviation
to purchase emission reductions from other sectors where it is
less costly and easier to achieve than forcing all reductions
to come from within the aviation sector. The key objective is
that emission reductions are made, so the overall environmental
objective is achieved, and, through trading, the abatement efforts
are shared between sectors of the economy in the most cost-effective
5. AN INTERNATIONAL
5.1 British Airways agrees with the UK Government
position that an international solution to aviation emissions
5.2 Unilateral and regional policy instruments
are unsuitable in the long term in an industry that is highly
5.3 British Airways is playing a leading role
within the aviation industry in developing and promoting robust
global climate policy through the International Air Transport
Association (IATA) and a dedicated group of companies called Aviation
Global Deal (AGD).
5.4 We believe that governments should collectively
adopt a framework for reducing aviation emissions based on carbon
trading that is applied equally to all airlines. The alternative
is a build up of uncoordinated, environmentally ineffective, national
and regional measures that will cause unintended distortion in
markets. Distortions occur when some airlines face higher climate
policy costs than others in the same market.
5.5 At their October 2010 ICAO Assembly meeting,
governments took a positive step forward by adopting a resolution
that introduces the concept of a global sectoral framework for
managing aviation CO2 emissions, aspiring to deliver
a target to cap emissions by 2020 and outlines principles for
environmental economic measures. Considerable effort will be required
from both governments and industry to further strengthen and elaborate
a global climate policy for aviation, and British Airways is determined
to proactively contribute to this effort.
6. GREEN INVESTMENT
6.1 British Airways supports the establishment
of the Green Investment Bank as an important initiative to accelerate
sustainable technologies. The Bank should prioritise first-of-a-kind
advanced technology solutions for commercial scale of aviation
biofuel using second-generation sustainable feedstocks.
12 May 2011
108 DfT, Developing a sustainable framework for UK
aviation: Scoping document, March 2011 Back