With the budget now less than a month away much attention is turning to taxation and how much the Chancellor will hike our taxes on 20 March. My particular focus in these Huffington Post columns has been on the effect the damaging Air Passenger Duty is having on the UK economy and this post continues the theme.
Over the past few weeks, several Conservative MPs have spoken against reducing Air Passenger Duty. Whipped to vote for higher rises each year, their reasons vary from 'air travel is a luxury', to the Secretary of State for Transport noting that 'it's not my place to take a view on taxes affecting air travel'. Some would argue that a politician whose job it is to help formulate aviation policy should have an opinion on how high aviation taxes are, but let's park that for now.
George Osborne has said on more than one occasion in the past few months that he is working towards the UK having a low tax environment suitable for greater overseas investment. It is a laudable plan but does it stand up to scrutiny? On some taxes, the direction of travel is downwards - Corporation tax falling from 28% to 23% since 2010 for instance. But when it comes to looking at the wider basket of taxes affecting consumer spending, that hasn't always been the case. VAT on tourism rose from 17.5% to 20% in line with other VAT rates in the Chancellor's Emergency Budget and APD has risen 16% since Mr Osborne moved into the Treasury.
The United Kingdom has for some time levied the highest aviation taxes in the world - a lead of more than 400% to our nearest rival and the direction of travel is upwards with further inflationary rises programmed for 2014, 2015 and every year from then on too.
In the past, the Treasury has missed countless opportunities to show its understanding of the benefits of being tax competitive in tourism. If we want the UK to prosper economically against our European counterparts as both a destination of choice for inbound visitors and domestic holiday makers, it is vital to encourage tourism services through Britain having competitive tax rates - especially on air travel - which let's not forget - is the means by which 70% of tourists visiting Britain actually arrive.
You only need to look over the Irish Channel to see how reducing air taxes can make a big difference to tourism. Ireland has lowered its aviation taxes to only €3 with a hope to lower it further if new routes are developed. Compare that to the UK's taxes that can be as high as £188 on a single ticket. Lower taxes for Irish airports is one of the reasons that the Chancellor, in a rare act of understanding about APD, lowered flight taxes for long haul flights from Belfast's airports and fast-tracked devolution of APD in total to the Northern Ireland Assembly.
Whilst some MPs have been arguing that the time is not right to tackle the burden that APD places on British tourism, others have been reading a rather good report by PwC. This independent report modeled the effects that abolishing APD would have on the UK economy using similar econometric models as used by the Treasury. It found that if the Chancellor abolished APD, the taxes raised from other parts of the economy that would be boosted by the APD cut would more than pay for the loss of revenue and help boost economic growth too. Reducing APD would also yield benefits for the UK economy.
Instead of arguing that taxation isn't a topic for MPs, or that APD doesn't matter, Members of Parliament would be well advised to download this report and make it their bedtime reading. The Chancellor, whose constituency includes part of Manchester Airport's second runway, might also find it a good read. What is for certain is that pressure is growing on the Chancellor to look again at APD rates as the myths around this tax are dismissed. Those in favour of the Treasury taking urgent action to address the UK's uncompetitive APD rates have less than a month to convince the Chancellor to act.