Budget 2011 and environmental taxes - Environmental Audit Committee Contents


Written evidence submitted by British Airways plc

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.  OVERVIEW

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 tax—Germany, Austria and France. The Dutch and Irish governments have recently acknowledged the impact of aviation taxation in their economies and scrapped their taxes.

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 & TAXATION

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 500,000 jobs.

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 flying—as 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.  "DESIGNING GREEN TAXES"

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 global marketplace.

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 financing.

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.  EMISSIONS TRADING SCHEME AND BEYOND

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.[108] 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 outcome—as defined by the emissions target set for aviation and the overall limitation placed on emissions through international agreement.

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 sectors.

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 manner.

5.  AN INTERNATIONAL SOLUTION

5.1  British Airways agrees with the UK Government position that an international solution to aviation emissions is essential.

5.2  Unilateral and regional policy instruments are unsuitable in the long term in an industry that is highly globally competitive.

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 BANK

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


 
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Prepared 7 July 2011