Business

David Jessop - THIS WEEK IN EUROPE

Within days of Britain's new coalition government taking office, it announced that it would replace its controversial Air Passenger Duty (APD) with a per-plane tax or duty (PPD).

Taken at face value, this would seem to be good news for the Caribbean and its diaspora in Europe, which have been actively campaigning against the existing tax and its discriminatory nature. However, as with so much in life, the devil will be in the detail.

So far, all that is known for certain is that Britain's ruling coalition has proposed in a 'Programme for Government', that it "will reform the taxation of air travel by switching from a per-passenger to a per-plane duty, and will ensure that a proportion of any increased revenues over time will be used to help fund increases in the personal allowance", (a UK tax break for lower-income families).

According to the new British government, the objective of the switch from APD to PPD will be to have airlines fly fuller aircraft. Because PPD is levied on a per-plane basis, it will also apply to private jets and cargo planes, plus domestic services, and will additionally affect the ticket price of the 20 million-plus transfer passengers that pass though the UK each year.

Calculating the duty

What is far less clear, is how the new duty will be calculated. For instance, will it just take into account the distance flown, or also include the fuel efficiency of the aircraft and other factors? If the objective is to cause the airlines to have greater load factors and thus cause less environmental damage, will it result in them reducing their flight frequency on less profitable routes, or changing their fare pricing structure? What is also far from clear is how the airlines will calculate the amount they pass on to passengers and the extent this will relate to class of travel or some other criteria. Also to be clarified is when the new tax will be introduced. This is especially important as travellers to the Caribbean from the UK are due to experience a significant increase in the existing tax, APD, this November.

More confusingly still, it is also uncertain how the new tax will relate to an all-Europe scheme to license aviation emissions that will be introduced in 2012. Then the EU will introduce a licensing requirement that will cover aviation so that all airlines flying out of and into Europe will have to purchase licences for carbon emitted above a certain permitted level. Again, the precise detail is unclear and may be subject to a legal challenge from US airlines, but the scheme will particularly affect larger airlines, those seeking to expand services and ultimately, ticket prices.

Britain has not yet made clear whether this European scheme will replace the successor tax to APD. However, given that the proposed PPD is expected by analysts to more than double the US$2.85 billion (£1.9 billion) tax take generated annually by APD and Britain's huge budgetary pressures, the probability is that after 2012, the EU scheme will be additional and result in a further imposition on the cost of air travel.

Not discriminatory

This suggests that the sole value from a Caribbean perspective of a change in British policy will be that the new tax is fairer and not discriminatory - all flights from the UK travelling the same distance will most probably pay the same level of duty - but might, if some estimates turn out to be true, result in the actual amount paid exceeding that levied under APD.

Caribbean governments and the industry have cautiously welcomed the removal by the UK of the discriminatory element of the APD whereby flights to anywhere in the US, including Hawaii, were taxed at a lower level than to any Caribbean destination, but have new concerns.

For instance, St Lucia's Tourism Minister, Allen Chastanet, recently told the BBC that while he welcomed the revised tax plans, it could do harm to the region's tourism industry. "We would not want to see any tax that would jeopardise the airline industry ... . The UK is a big market for us, we have invested a lot of money (there) ... . So any tax right now, given the recession, would reduce the amount of demand which then converts into hotel stays and jobs for this country," he said.

Speaking to the BBC Carib-bean Service, the Caribbean Tourism Organisation's (CTO) director general said: "This pleases us here at the CTO, but it is early days, so we are looking forward to receiving the details of what exactly is involved in the per-plane tax".

Less than happy

For their part, the scheduled carriers are less than happy. British Airways said, "We believe that aviation's impact on climate change is most effectively addressed by the inclusion of airlines within the EU emissions trading scheme, which will happen from 2012. Emissions trading leads directly to reduced emissions. Taxes do not".

To complicate matters, splits have occurred in the industry. The Association of British Travel Agents has welcomed the change, as have low-cost, budget and charter airlines that typically achieve load factors of between 80 and 90 per cent.

Over the last year, the Caribbean has campaigned strenuously against Britain's Air Passenger Duty with governments, diplomats, and the Caribbean community in the UK making its voice heard politically before and during the general election campaign.

What is now needed is for Caribbean ministers to begin to explore with Britain's new coalition government its thinking on the PPD, how this will relate to Caribbean interests, and in the longer term, to the European Aviation Emissions scheme. In all of this, the community in Britain has a continuing role to play in asking its parliamentarians and the media the same questions, and above all, what the actual cost of the tax will be on air travel to the region.

David Jessop is the director of the Caribbean Council and can be contacted at david.jessop@caribbean-council.org. Previous columns can be found at www.caribbean-council.org.