Transport CommitteeWritten evidence from HACAN (AS 10)

1. The objective of Government policy on aviation

1.1 The objective should be the development of an aviation policy which benefits the economy while respecting environmental limits.

2. The economic benefits of aviation

2.1 International aviation brings benefits to the economy in terms of international connectivity, trade, investment and employment.

2.2 However, the situation is complex. The growth in short-haul budget flights has reduced those benefits. There is a direct correlation between the growth in budget flights and the tourism deficit (the difference between what visitors spend in this country and what Britons spend abroad). The tourism deficit reached a peak of £20 billion in 2008 but fell back in 2010 to £14 billion. We are sceptical about the “huge” contribution which ABTA claims travellers flying abroad make to the economy through their spending in this country associated with the trip. The UK Tourism Satellite Account is cautions about this spending: “One area where data remains poor is in assessing spend by UK residents travelling abroad before they leave the country…….” In our view, therefore, the fact that there is a substantial tourism deficit has not been disproved.

2.3 The economic benefits of aviation are also reduced though the costs it imposes on society and the environment. The economic costs of the noise, air pollution and the climate change gases aviation produces need to be subtracted from its economic benefits.

2.4 The Exchequer also looses out through the tax-free fuel the airlines enjoy and their VAT zero-rated. It has been calculated that, if VAT was paid and fuel was taxed at the same rate as petrol in cars, the Exchequer would receive around £10.5 billion a year. We understand the argument made by the industry that it pays for a lot of its own infrastructure. We also appreciate that bus and rail travel enjoy some tax breaks. The only point we want to make here is that, when calculating the true contribution of aviation to the economy, the tax-breaks it enjoys need to be factored in.

2.5 Air Passenger Duty raised £2.6 billion for public finances in 2011–12 and this is planned to increase to £3.9 billion by 2015–16. APD would, however, need to rise to four times its current level to offset the exemption from fuel duty and VAT.

2.6 It needs to be stated clearly that APD is not an environmental tax. It was introduced by Ken Clarke, the then Chancellor of the Exchequer, because he considered the aviation industry to be lightly taxed compared to other sectors, largely arising from its exemption from fuel duty and VAT. This means that APD should be paid in addition to any environmental taxes. APD is not a substitute for the EU Emissions Trading Scheme. They serve different puposes.

2.7 The levels of APD paid by most passengers must not be exaggerated. In 2010–11, the latest year for which figures are available, 77% of passengers paid APD at the short haul economy rate (Band A): £13 for a round trip.

2.8 And the UK is not alone in having a ticket tax. Spain has recently increased the amount of its departure tax it charges from €5 to €9. The tax is charged to the airline. Germany imposes an ecological departure tax, in 3 bands, from €8, €25 and €45 for the longest trips. Austria has two bands, of €8 for short haul and €40 for long haul. In France, air passengers pay a Passenger Solidarity tax, (around €5–€6) which goes to Unitaid, which buys HIV/AIDS, malaria and TB drugs.

2.9 If APD was to be abolished, the Exchequer would be looking to recover that tax by imposing higher taxes elsewhere.

3. The importance of international connectivity to the economy

Current connectivity

3.1 The starting point needs to be a clear recognition that London is already the best-connected city in Europe. Its excellent air transport links make it the top city in Europe to do business, according to global property consultants Cushman & Wakefield. Their 2011 survey of business-friendly cities placed London in first place. It retained its position for the 22nd year in a row. The influential survey, The European Cities Monitor 20111, based on interviews with the bosses from Europe’s 500 largest firms, found that London had the best external transport links, internal transport and telecommunications of any European city. (It scores much more modestly in terms of noise, air pollution, traffic congestion and general quality of life).

Cushman & Wakefield commented:

London is still ranked—by some distance from its closest competitors—as the leading city in which to do business. Paris and Frankfurt remain in second and third place respectively, although the gap between the two has widened.”

3.2 The findings of the Cushman & Wakefield study were reinforced by International Air Connectivity for Business2, published last year by WWF and AirportWatch which found Heathrow to be “in a class of its own” as far as business links are concerned. It has around 990 departure flights each week to the world’s key business centres, that is more than its two closest rivals, Charles de Gaulle (484) and Frankfurt (450), combined.

3.3 And Heathrow must be looked at in the context of all London’s airports. London with six airports and seven runways, has more runways than any of its European rivals, except Paris: Paris is served by three airports and eight runways; Amsterdam by one airport and six runways; Frankfurt by two airports and five runways; and Madrid by one airport and four runways. London has more flights to key business destinations in every continent, except South America, than its European rivals.

3.3 It is also important to stress that Heathrow is not full. As far as runways are concerned it is operating at 99% capacity, but it has the terminal capacity to take another 20 million passengers a year.

3.4 It is equally important to scotch the myth about Heathrow capacity being the main deterrent to Chinese firms locating to the UK. The cost and difficulty of getting a visa is a key deterrent. Adam Marshall, of the British Chambers of Commerce:

“China is a fast-growing trading partner for Britain, so we need to do our utmost to welcome both tourists and business visitors from the world’s largest country. Unfortunately, businesses trading with Chinese firms report that the process of securing UK visas is both expensive and cumbersome. If individual tourists and Chinese companies can secure more flexible Schengen visas at a lower cost, the sad reality is that many companies here in Britain could lose substantial business”.

3.4 And of course there is a bilateral agreement between the UK and mainland China which limits the number of flights between the two countries to 62 a week.

Future connectivity

3.5 What of the future? The Department for Transport has concluded that the UK will not need extra airport capacity until nearly 2030. So, it is not urgent. However, as new runways (if they are needed) take time, it is prudent to start considering future capacity needs now.

3.6 Before any decision is taken on future capacity needs, the country needs to make as accurate an assessment as it can about future demand. This needs to include an assessment of future oil prices, the impact of a growing population, demand from the emerging economies, future levels of taxation, the potential of modal shift to rail, the future use of video-conferencing and the impact of any climate change and noise targets. Only when this is done is the UK in a position to assess what capacity may be required and only then to look at where that capacity might be found.

4. Community and environmental constraints on capacity

4.1 In order to protect communities and the planet there need to be constraints on capacity.

4.2 The Committee on Climate Change has advised that flights should not grow by more than 60% if the UK is to meet its climate change targets. This allows for improvements in technology and in operational practices. That should be a firm limit.

4.3 There also need to be noise limits. Ideally they should be included in an EU Directive along the lines of the Air Quality Directive and should be based on the limits recommended by the World Health Organisation. However, it is unlikely that is going to happen. The most effective noise limit is a cap on the number of planes using an airport. It is the sheer growth in flight numbers which has been the cause of so much annoyance and concern in local communities over the last 15 years.

4.4 The air pollution legal limits outlined in the Air Quality Directives need to be respected

5. Heathrow

5.1 The Government has that its opposition to Heathrow expansion “was, and continues to be, determined in large part by a concern about the scale of the noise impacts at the airport”. We believe this is correct. The sheer numbers of people impacted by noise from Heathrow—over 720,000, 28% of all people disturbed by aircraft in Europe—should, in itself, rule out any further expansion of the airport.

5.2 But expansion at Heathrow would also run into air quality problems. At present there are small areas close to Heathrow which have air pollution levels in excess of the EU limits. Even with the introduction of cleaner planes, it is very hard to see how an increase from 476,000 flights to 560,000 with mixed-mode, far less the 702,000 if a third runway was built, could not lead to regular exceedences of the EU legal limits.

5.3 Even with the inclusion of CO2 emissions in the EU Emissions Trading Scheme, if a third runway was built at Heathrow, it will rule out expansion anywhere else if the UK is to stay within the limits recommended by the Committee on Climate Change.

6. What would be the implications of failing to provide additional capacity?

6.1 It cannot be assumed that, if no more airport capacity is built in London and the South-East, there will be a reduction in flight numbers to the key business destinations of the world. The market will determine which destinations are served. The likely scenario is that airlines using a constrained Heathrow will concentrate their resources on their most profitable, inter-continental routes which attract a significant number of business passengers. Many of the short-haul flights, particularly those primarily serving the leisure market, will be squeezed out (and are likely to relocate to some of the other London airports where there is spare capacity). The airlines will ditch short-haul European destinations if it is more profitable to serve Chinese cities. The trend will be towards the use of larger aircraft, each carrying more passengers, utilizing the spare terminal capacity at Heathrow.

6.2 It has been argued that fewer short-haul flights at Heathrow would reduce its ability to function as an effective hub. While its hub status has been important to business, there is evidence to suggest that that importance has been overstated. We can find no hard evidence that the London economy will lose out if Heathrow does not expand as a hub. The reason for this is London’s importance as a destination to business people. This was emphasized in Transport Statistics Great Britain 20113, from the Department for Transport which showed that, worldwide, Heathrow had the largest number of terminating passengers on international flights in 2010. An earlier report from the Dutch economists CE Delft made a similar point. In The economics of Heathrow expansion4 they argued that a third runway was not required at Heathrow because, for business as a whole, other factors, such as the vibrancy of London’s financial centre, were of greater importance than the size of Heathrow. This is not to argue that Heathrow’s hub status brings no economic advantages; simply that the links between London’s economic performance and the size of its hub airport is complex and requires further assessment.

6.3 It could be that further deregulation of the aviation industry is of more importance to UK plc than the provision of extra capacity. At present, for example, the number of flights between the UK and China is limited to 62 a week by a bi-lateral agreement. The impact of a more deregulated market requires further study. That could include an assessment of the way restrictive practices over slots at Heathrow is preventing a more flexible use of the existing capacity.

6.4 Much has been made of the fact that, without airport expansion, business people will not be able to fly directly to London from many of the emerging cities in Asia and South America and so businesses locate in or relocate to European cities which may provide such direct flights. There are three points to make.

First, as stated above, it is likely that, in a constrained scenario, airlines using UK airports will respond to market forces and serve more destinations in the emerging economies, possibly at the expense of short-haul European destinations.

Secondly, it is unrealistic to think other European cities will ever have more than a limited number of flights to second-tier cities in other continents. Some interchange seems inevitable. It would take place at the hub airports which will develop in Asia, Africa and South America or at major new airports like Dubai which are specifically designed to facilitate an easy and quick interchange for inter-continental passengers. They can provide the links between Europe and a whole range of cities in other continents. As such they can and will enhance business connectivity. They should be seen as an opportunity, rather than a threat.

Thirdly, public opposition to new runways and new airports in Western Europe has become, and is likely to remain, a powerful obstacle to expansion. Plans for a third runway at Heathrow had to be scrapped. A fourth runway at Frankfurt was only built in the teeth of massive protests, including the sight of thousands of people occupying the nearby woods. And protests have continued since it opened in October 2011. Every Monday evening up to 5,000 residents occupy the terminal in protest against the impact of the new flight paths. In Munich earlier this year residents blocked a third runway by voting against it in a city-wide referendum. Plans for Nantes International Airport have faced long-term opposition, including a 28 day hunger strike by protesters. The safest assumption is that airport capacity in Western Europe will remain much as it is now over the coming decades.

7. Conclusion

7.1 Any aviation policy needs to operate within an environmental framework set by Government. That framework needs to take account of residents’ health and quality of life as well as the future of the planet. It is within these parameters that future demand and capacity must be considered.

7.2 Good connectivity is good for business. Improved connectivity to the emerging markets of the world is important. Many short-haul leisure flights contribute little to the economy and, indeed, because of the tourist deficit may be a drain on the economy. Government has the option of using fiscal measures to restrain short-haul flights to create extra capacity for more long-haul flights from the emerging economies if the environment framework it sets requires choices to be made.

5 October 2012


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Prepared 31st May 2013