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B R I T A I N ’ S H I G HG R E E N T A X E S ecaf_2138 81
Roger Bate
In 1994, the Major government implementedthe first ‘environmental tax’ on airline travel.Tariffs are likely to increase in the near future,to increase government revenue and deterincreases in greenhouse gas emissions. Buteven with existing tariffs, air travel is set toincrease in the UK over the next twenty years.The Department for Transport projects that, ifnot constrained by airport capacity, trafficcould grow from 241 million passengersannually in 2007 to 465 million in 2030. Ofcourse airport capacity is constrained. TheBritish Air Transport Association claims thatexisting limited capacity will cost the UKeconomy over $10 billion over the next 20
years, and with no new runways planned forthe South East of England, impact on theeconomy will be even worse after 2030.
Perversely this is viewed as good news bythe government, because it provides an excuseto increase revenue by slowing demand. Airtravel is fairly price inelastic. So existing tariffsonly slightly depressed the speed with whichincreased demand raised significant revenue.UK industry wants new airport capacity andthe UK government wants more revenue, andalthough both are possible, only the latter willoccur.
No direct levies are raised on air travel inthe USA. Yet there is internationalcompetition for travel into and out of UK, andUS airlines do not pay the tariffs. A quickcomparison of carriers flying the popularLondon-Miami route demonstrates thechallenge that British carriers already face –the prices across carriers were quite close.Slight differences could probably beaccounted for by different services provided,customer loyalty or differences in the numberof passengers already registered at the time offlight booking. The current state of affairshurts consumers by allowing US carriers toinflate prices and also places a substantialburden on British airlines.
I wondered how many BA flyers wereaware of the tariffs which start at £60. Sincemany passengers may not be in favour of thetariffs, I decided to ask the flyers who hadbought the tickets.1 Last August, I surveyedpassengers checking in at Heathrow airportfor international economy flights to theUSA: 116 passengers were approached, 21
declined to participate, and 95 answeredquestions.
Most passengers know that tariffs exist,but are not aware of the size. Passengers seemto believe that tariffs will depress travel, andimplicit in the answers is the knowledge thatrailways and bus services do not charge tariffsfor security or environmental costs, whichprompts the question, ‘ why should airlines?’
Nearly three quarters of respondents saidthat, if the tariffs were increased further (bythe proposed £60), it would affect theirdecision to fly. Perhaps a tipping point hasbeen reached, suggesting that demand forairline tickets has peaked, but this answermay also be just a warning and protest againstthe tariffs.
If demand falls because of tariff increases,it is economy class holiday-makers who willprobably be hardest hit, affecting not onlyairlines but the entire tourism industry. Tariffsharm low cost airlines such as Ryanair andeasyJet. For these airlines, the tariff has oftenbecome the main cost of the ticket, limitingthe bargains available. And, since the planewas flying anyway, these marginal flyerscontributed almost nothing to emissions.
Poor British families, already reeling fromthe economic downturn, increasingly cannotafford to fly. There is strong support fromnearly three quarters of economy flyers forlevying higher taxes on business and first classtickets. This is in line with the current systemof taxation, which results in the moreexpensive ticket consumers paying more intaxes. But most business flyers will not bepaying for the tickets themselves and theircompanies probably deem the travel anecessary cost of business, and the tariff is farlower as a percentage of the ticket cost anyway.
Much remains to be answered, and manyquestions should be posed to travellers infurther larger surveys. For now, it appears thatthe British summer holiday has joinedsmoking and drinking as sins to bedisapproved of by the British government,with taxes set to rise inexorably.
1. See http://www.aei.org/article/104296 for a researchpaper based on this survey.
Roger Bate is the Legatum Fellow at the AmericanEnterprise Institute.
Public Healthand theEnvironment
© 2012 The Author. Economic Affairs © 2012 Institute of Economic Affairs. Published by Blackwell Publishing, Oxford