The View from Europe
By David Jessop

The Caribbean offers a solution on APD 

It is not often that the Caribbean can say it is leading global thinking on an issue; but that it what happened this week when the Caribbean Tourism Organisation (CTO) released a detailed report on the damaging effect on tourism that the UK government’s controversial Air Passenger Duty (APD) is having. More importantly, its 29 page document suggested ways in which the tax might be restructured so that it is more equitable and less damaging to the region and the Caribbean community living in Britain.

The report, ‘The Impact of Air Passenger Duty and Possible Alternatives for the Caribbean’*, was compiled by the CTO at the request of the UK Treasury after Caribbean Tourism Ministers met British Ministers in London in September to express their concerns about the impact of a tax, the banding system of which the report describes as being ‘discriminatory against the Caribbean’ and ‘intellectually incoherent’.

The report makes a number of key points. It demonstrates that arrivals from the UK to the Caribbean are declining while those from other source markets are increasing. It provides evidence that APD is considered by regional and international financial institutions to be having a negative effect on the Caribbean economy. It also provides statistics on how the increases introduced on November 1 this year are already having a negative effect on bookings, while suggesting that the damage will only be felt fully as the year proceeds. Tellingly, it makes the point that UK companies in the aviation, tourism and travel industries are also being damaged by APD as bookings to the Caribbean decline. 

However, what sets this report apart is that it puts forwards a basis for a potential solution.  It suggests an approach to the banding structure that creates just two rates. It proposes that travel to what are largely EU destinations and travel to the rest of the world be divided. This it argues would create a more equitable relationship between the number of passenger miles flown, the overall distance travelled and the taxation of carbon emissions.

As an alternative to the current banding system, and in preference to a per plane tax, the paper makes clear that the Caribbean would favour a two-band distance system that ensures that ‘the environmental costs of reaching all destinations are better reflected’.

Using UK government data for the first quarter of 2010, the report suggests that if all medium and long haul destinations from Air Passenger Duty bands C and D in coach class were moved in to band B, the lost revenue to the UK Treasury would be £11.44m. But by increasing the APD in coach class for band A by just £1 per flight, the increased revenue for band A in economy would be £14.22m.

Speaking at the just ended annual tourism trade show, World Travel Market, the Chairman of CTO, Richard Skerritt, who is St Kitts-Nevis’ Minister of Tourism, told the media: “The tax discriminates against long-haul travel. It's also hugely unfair because it penalises destinations where there is no alternative way to travel other than by air. If you tax flights to France from the UK, passengers can choose to reach their destination by ferry, car or rail,” the CTO Chairman said. “The Caribbean doesn't have that luxury”. 

The report, he said, clearly demonstrated that UK visitor numbers to the Caribbean were declining compared with numbers arriving from other source markets.

The UK currently imposes an APD on all passengers departing from UK airports (excluding transfer passengers). There were originally two ‘bands’ for APD, one for European destinations, and one for all non‐European destinations, which included the Caribbean. But this was later replaced by a four‐tier banding system based on the distance between London and the destination country’s capital city. 

The Caribbean was placed in band C, a decision that Caribbean governments argue places them at a competitive disadvantage to, for instance, holiday destinations in the US which have been placed in lower bands.  South Florida and the Florida Keys are in a lower tax band despite being further away from London.

Caribbean unease has been heightened by the increase in APD rates on 1 November from £50 (US$77) to £75 (US $115) for economy-class travellers to the Caribbean and from £100 (US$154) to £150 (US$291) for premium economy, business and first-class passengers. This concern is being further deepened by possible future increases in the APD and the possible parallel increase in air fares that could accompany the inclusion of aviation in the EU Emissions Trading System (EU ETS). In this event, the report says, many UK travellers could be priced out of the Caribbean market.

On November 8th all UK Government departments under a British coalition initiative aimed at making government more accountable and transparent, published their forward business plans.  That from the Treasury stated that it would explore the potential to replace APD with a per flight duty and that its review was due to be complete by end of March 2011. For its part the UK Department for Transport said that it would implement the inclusion of aviation in the EU ETS by January 2012.

This means that the Caribbean now has a clear timetable in which to ensure its voice is heard in the UK Parliament and by British Ministers. In doing so, the Caribbean will not be alone as during World Travel Market it became clear that many other nations around the world are just as angry at the way in which APD has been implemented.

APD is anti-developmental through the negative effect that is having on struggling tourism dependent economies.  It is also harming the ability of the Caribbean’s community in the United Kingdom to return home. 

The Caribbean’s thoughtful proposal requires careful consideration by the UK if differences over aviation taxation are not to escalate further.

* http://www.onecaribbean.org/content/files/apdcTOREPORTNov92010.pdf
David Jessop is the Director of the Caribbean Council and can be contacted at [log in to unmask]
Previous columns can be found at www.caribbean-council.org
November 12th, 2010