Posted on: February 11, 2013
The world's worst travel tax
Back in the news this week: Britain's Air Passenger Duty (APD), our perpetual nominee for the travel industry's "Most Loathsome Tax" award.
The tax is back in the news because four airlines in the U.K. and Ireland (British Airways, Virgin Atlantic, EasyJet and Ryanair) commissioned a report on the pros and cons of the tax from Pricewaterhouse Coopers.
To the surprise of no one in the travel business, the cons won, and Pricewaterhouse concluded that the world in general and the U.K. economy in particular would be better off without this tax. It's such a drag on the British economy that abolishing the tax would pay for itself, Pricewaterhouse said.
This confirms our view that the APD should be laid to rest along with Richard III's newfound bones, perhaps in a memorial to Interesting Concepts That Ended Badly.
The APD is a true outlier among international airline departure taxes. In its report, Pricewaterhouse called the APD "the highest tax of its type in the world by some considerable margin." Depending on the routing, it is up to twice as high as the next highest such tax in Europe, and amounts to $407 for a family of four traveling to the U.S.
We have heard before the argument that the elimination of the tax would bring an immediate lift to the U.K. airline and travel business, boost employment and, in turn, generate additional tax revenue for the U.K.
An additional argument, one we have not focused on before, is presented by Pricewaterhouse in a chapter refreshingly titled "Basic Fairness."
Under this heading, Pricewaterhouse made the case that the tax is worse than regressive. In 2010, 45% of the airline trips subject to this tax were taken by passengers with below-average income.
The report then makes the point that family expenditures on recreation, cultural events and travel, though often labeled "discretionary," are nevertheless highly valued, and consumers are reluctant to forgo them. "Foreign holidays or being able to take overseas trips to visit friends and relatives are a contributor to general well-being," the report said, suggesting that a tax that restricts these activities has a disproportionate effect on moderate- and low-income travelers.
The tax was initially seen as an environmental tax, aimed at curbing carbon emissions, but Pricewaterhouse concluded that while the tax has clearly discouraged air travel, "there are better instruments available."
We urge the U.K., once again, to discover and deploy them.
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