Region still reeling from APD

By David Jessop

In recent months there has been little media coverage in the Caribbean about the contentious issue of the United Kingdom’s Air Passenger Duty (APD). However, the issue remains one that disrupts relations between the region and the United Kingdom.

As is now well known, APD is an airline ticket tax that discriminates in favour of US and other destinations through a distance-based banding system. The tax, for example, places the whole of the US, including the Caribbean’s competitor destinations in Florida, in a lower tax band, despite the region being closer to London, vastly more tourism dependent, and in economic difficulty.

Although the Caribbean has had significant political support in the UK Parliament and has seen an extensive lobby mounted by voters in its Diaspora in many marginal constituencies, the British Chancellor of the Exchequer has ignored all arguments from the region and has continued to increase the tax year on year.

Up to now much of the Caribbean’s emphasis has been on addressing the issue with its usual interlocutors from Britain, the UK Foreign Office and Development Ministers responsible for the relationship with the Caribbean. As a consequence the biennial UK Caribbean Forum held in Grenada in January saw Caribbean Foreign Ministers speak about the issue in an unusually direct and frank manner with their counterpart, the UK Foreign Secretary, William Hague.

The Caribbean’s anger was subsequently reflected in the unusually strong language used when Caricom Foreign Ministers met in May. Then they ‘denounced in strong terms the negative impact that the tax continues to have on the region’s revenue source’ and also observed that ‘the tax was distorting trade and compromising the Region’s efforts towards sustainable development, including the achievement of the Millennium Development Goals’.

Although the issue appears not to have been considered when Caribbean Heads of Government met in July, Caricom’s Chairman, the Prime Minister of St Lucia, Dr Kenny Anthony, whose own country is suffering the effects of the tax, has since written on behalf of the region to the UK Chancellor. His letter made clear that while the region understands the fiscal challenge faced by the UK in respect of raising revenue, it does not believe that APD should be imposed unfairly, or at the expense of the Caribbean economy and its community in the UK.

The issue is likely to come to come back to prominence when Dr Anthony visits the UK and again in London in November when Caribbean tourism ministers and the region’s industry attend World Travel Market, the annual forum and market place for the tourism trade.

There, Ministers are likely to use the opportunity to meet yet again with UK Ministers, Parliamentarians and the Diaspora.  They are also likely to participate in a broadening coalition of governments from Australia to Egypt in making the point that APD is a tax on growth at a time when most nations, including the UK, could benefit rapidly from any easing of the cost of travel and increased tourism.
Despite UK ministers’ arguments to the contrary, it is clear from the UK’s own statistics that APD is hurting the Caribbean.

Data from the UK’s Civil Aviation Authority (CAA) suggests that international passenger traffic between the UK and the Caribbean decreased by 10.7 per cent between 2008 and 2011. This compares with a 1.1 per cent overall increase in the UK’s international passenger traffic over the same period.
The UK Office for National Statistics (ONS) has also indicated that Caribbean arrivals are declining, with a 7.6 per cent fall in visits by air to the region by UK residents between 2008 and 2011. ONS figures for travel to the region by the Caribbean community in the UK show an even greater fall with a decrease in this category of visitor to the region from 2009 to 2010 of 3.4 per cent.

Last year the UK Chancellor, George Osborne, chose to ignore the Caribbean’s well argued and widely supported case for changing the banding system; an approach that was revenue neutral and sought to remove the discriminatory aspects of the tax.

Since then Britain has continued to increase the tax, year on year, at a rate equivalent to UK inflation.
Yet even this is not what it seems and has introduced new inequities. Although the UK Government announced that it would introduce for 2012-13 an inflationary increase in the rate of APD across the board, this was not evenly applied. Instead the lowest band, band A (short haul within Europe) did not increase at all,  band B (which includes the US) increased by 3.1 per cent, Band C, which includes the Caribbean, by 2.5 per cent and the furthest band was increased by 2.2 per cent.  The figures were said to reflect a process of rounding to avoid pennies.

However, what this new approach seems to indicate is that the UK Treasury has taken yet one more step away from consistency and is prepared to adjust the figures in any way that meets the Chancellor’s domestic political requirements.

What is extraordinary in all of this is that new research shows that if the Caribbean were to be re-banded at the same level as the US, the cost to the UK Treasury is estimated at just US$30m (£18.6m) out of an overall APD take by the UK Treasury of US$ 4.7billion (£2.9 billion)in 2012. In other words the costs of reducing the discrimination and helping restore Caribbean growth would be little more than the UK spends on bilateral development assistance to the region.

If Britain wants to demonstrate that it really cares about Caribbean economic stability, then its Chancellor should be prevailed up in his next budget find a politically and revenue-neutral way to re-band a region that is facing an economic crisis of growing proportions.

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