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Why the future of passenger tax is still up in the air

By John Simpson

Published 17/06/2015

A recent study has suggested that abolishing APD would, by 2026, generate 507,000 more airline passengers in Northern Ireland each year
A recent study has suggested that abolishing APD would, by 2026, generate 507,000 more airline passengers in Northern Ireland each year

There is strenuous support from the travel trade either to abolish Air Passenger Duty (APD), as a UK tax, or for the Northern Ireland Executive to abolish APD on flights from the province.

The UK argument is an issue for UK government policy. Local travel agents such as Mukesh Sharma of Selective Travel are unambiguously pushing for change here.

The local argument lies with the Executive, knowing that the cost would be deducted from the Block Grant.

The Department of Enterprise, Trade and Investment asked the NI Centre for Economic Policy (NICEP) at Ulster University to assess the impact on passenger numbers of changes in airfares and the associated impact on the economy. This was delivered by examining the options if APD was reduced by 50%, abolished or increased by 10%.

In a study of these options, with quantified estimates, NICEP concluded that the effect of abolishing APD on flights from Northern Ireland would not generate an overall benefit for the economy. Indeed, over a period of years, even with the possible reduction in passengers travelling through Dublin Airport, it would impose a net economic cost.

Taking just one partial illustration, drawn from the NICEP study, it suggested that abolishing APD would, by 2026: generate 507,000 more airline passengers each year; add an annual £35.8m to the local economy (in tourism and extra business incomes); deduct £42.9m from the local economy (in the net loss of tax revenue); leave a net annual cost of £7.1m.

The detailed calculations are complex and dependent on many assumptions. The conclusion is that the Northern Ireland Executive does not have a strong case to justify the abolition of APD.

This conclusion has been challenged in a further review prepared by consultants Mott MacDonald for Belfast International Airport. There is no single right answer. Subjective judgments can only be tested against individual opinions.

Mott MacDonald argues that NICEP has not fully explained all of the methodology, relied on outdated data, used statistics that give too low a value (instead of average values), and could have used alternative assumptions. A further suggestion of a possible calculation error is now seen as a misunderstood presentation.

A critical issue, which could influence the overall conclusions, stems from the weighting given to the impact of lower APD on the numbers who might use the (net) lower airfares to go out of Northern Ireland on holiday. The NICEP study deducts a large net tourism deficit of £12.9m in 2026 in the estimated net cost of £7.1m.

Would a reduced APD have the effect of encouraging so many more local people to travel abroad (on holiday) and should this be a net 'cost'? Critically, MacDonald disagrees with the NICEP assumption.

The other criticisms made by MacDonald have less major implications.

Gareth Hetherington, from NICEP, has responded to the criticism levied by Mott McDonald. He said: "Any contribution to the economic development debate is always welcome. NICEP has reviewed the paper produced for Belfast International Airport by Mott McDonald and has provided a detailed response to DETI and DFP on the individual issues raised. In short, we are satisfied that the findings in (our) report are robust and we stand over the assumptions and conclusions made. 

"When considering a policy change, it is important to apply realistic assumptions regarding the scale of benefits to be achieved as well as the cost implications."

The Executive now has an independently-compiled assessment which does not support the abolition of APD on flights from Northern Ireland.

The professional integrity of both reports is not in doubt, but after reviewing the contrasting assumptions and calculations, the NICEP advice has not been seriously faulted.

The Executive now has advice that the cost of abolishing APD on flights out of Northern Ireland would not be justified.

That does not preclude a different answer for removing APD as a UK-wide tax.

Belfast Telegraph

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