Is Aviation a Net Contributor to the Exchequer?

Twitter is not the place for complex arguments about economics, but we were challenged by John Morris from Birmingham Airport over what we said in the Birmingham Post about the claims that the airport is good for our economy today.


We have produced an in-depth report for the DfT's consultation on aviation, which revealed that last year aviation was responsible for a net loss of over 85 000 jobs in the region, so obviously they were not happy with such a negative story going in the press at this sensitive time.


John Morris claimed that "aviation is a net contributor to the exchequer, unlike other public transport." so let's examine that a little:


Firstly, the UK needs some aviation so shutting it down does not make sense, but the benefits aviation can yield have already been realised and further expansion yields little extra benefit, but a lot more costs including more noise, more emissions and more outbound tourism. The business benefits are flattening off (as probably evidenced by the business share of passengers dropping as passenger numbers increased overall) but the outbound tourism costs are linear with increase of passengers.

Secondly, let's look at what a "net contributor" is and on what basis this can be claimed. He implies that they receive no revenue from the government but instead pay some tax including APD. However, they also forego payment of tax and duty on fuel, VAT on tickets, and can claim back VAT even though they don't pay it (zero rated rather than VAT exempt). They also receive subsidies in other forms (e.g. they rarely pay for the full costs of extra surface access infrastructure that enables passengers to get to the airport). So they can only be a "net contributor" if you ignore all the ways in which they are not taxed and the ways in which the government pays costs that rightly should be paid for by the aviation industry.

Thirdly, aviation is not a form of public transport by any reasonable definition, so you cannot compare it as like-for-like with trains, trams or buses.


I'm afraid they really don't understand what planet we're on:

Joe Peacock

Rising Oil Prices and the Threat to the Aviation Industry

We've all known about "Peak Oil" for some time and been warning that this will impact on unsustainable fossil-fuel dependent industries. This is starting to hit home already, yet state aid continues to be pumped in to prop them up.

It has been reported, the aviation industry faces danger from fragile consumer confidence and rising oil prices as passenger numbers fall at Stansted and Heathrow Airports. The leisure market, dominated by Ryanair and easyJet and charter operators, remains weak. Stansted and Southampton were BAA's worst performers last month, posting year-on-year falls of 7.4% and 8.7% respectively. Colin Matthews, BAA chief executive, said: "Continued rises in the price of oil are a concern for airlines and passengers in all our markets." John Strickland, an industry consultant, agreed saying: "The big concern in the industry is still the oil price. It is rising rapidly." Rising oil prices means the cost of fares are increasing, thus further reducing passenger numbers. Last week BA increased its fuel surcharges for the third time in less than four months as the price of jet fuel rose to $134 (£82) a barrel – three times its low point in early 2009, in a attempt to survive. Fuel accounts for nearly a quarter of airline operating costs and is largely out of carriers' control.

The spiraling costs of fuel has greatly impacted budget airlines, such as Ryanair. Ryanair said its fuel bill soared by 93% in 2008 and represented almost half of its operating costs, up from 36% 2007. Budget airlines are mitigating the increases by charging higher fees for checking in bags and priority boarding passes. Budget airlines will try to leave the prices of fares untouched, as cheap tickets are key to their business model which use bargain fares to pack passengers on to airplanes. "They cannot afford to raise fares. It would break their model," said Strickland. "Occupancy would fall and they will not make enough money to cover increased fuel costs." Furthermore, the cost of fuelling a transatlantic flight, the most profitable part of BA's business, has quadrupled since 2000 to $44,000 (£22,200). It is estimated many airlines will not survive a combination of expensive fuel and a drop-off in demand as passenger numbers decline due to expensive fares and dwindling consumer confidence.

This ties in with the work Birmingham Friends of the Earth has been doing. We oppose the growth in aviation as it is one of the fastest growing sources of greenhouse gas emissions, plus airports create noise, air pollution and congestion. Rising costs of fuel and increased usage of the aviation industry are highly unsustainable for passengers and the environment. We are against the growth of this industry and would like to see it pay its full environmental costs, not shift them onto the tax-payer. Joe Peacock reacted to the news this week of state aid being provided to subsidise the building of the runway extension at Birmingham Airport through the Regional Growth Fund. "The aviation sector pays no tax on its fuel and no VAT on the sales of tickets and planes but that is not enough it needs our help to build the infrastructure from which it plies its trade.” “These decisions show the hand of the Government and with its financial support of the aviation sector how it can claim to be the Greenest Government ever is beyond us.” It is hoped a process of due diligence on the bids will be open to full public scrutiny.