Friday, November 10, 2006

Expanding air travel = bad economics

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Andrew Skipp, Managing Director of Bristol International Airport is clearly wrong to suggest that expanding air travel is good for the economy ('Were ready for take off', Bristol Evening Post, November 9). The Bristol Evening Post's Comment of 9 November about 'the undoubted economic benefits a bigger airport will bring to the region' is also wrong. Figures on the economics of air travel clearly show that expansion is unfavourable.

The economic costs of aircraft noise in the UK are estimated at £313 million a year. The health costs of the UK aviation sector's air pollution amount to some £1.3 billion a year. Aviation is also the fastest-growing source of greenhouse gas emissions, and it's now acknowledged by the Stern Report that climate change is the gravest threat to global prosperity.

The costs of UK aviation's contribution to climate change have been estimated at well over £2 billion. And unless the government radically changes its policy on the matter, aviation's CO2 emissions will have increased by 588% between 1992 and 2050. By 2050, aviation could be contributing up to 15% of the overall global warming effect produced by human activities - with staggering economic costs. The damage from climate change is rising at a faster rate than economic growth.

The overall hidden economic costs of the European Union's aviation sector have been estimated at £14.3 billion a year - of which the UK alone accounts for £3.782 billion, or 26%. This doesn't include the costs of aviation accidents and accident services.

One of the major justifications for airport expansion is that aviation boosts our economy through tourism. Yet we know that air passenger transport currently represents a drain on the UK balance of payments of £3.5 billion a year - not including the costs of importing fuel and aircraft. With 80% of the forecast growth being accounted for by leisure flights, we can only expect this to get worse.

Airline tickets, aircraft and aviation fuel are, despite all the words of concern about climate change, still zero-rated for VAT. This costs HM Treasury £1.8 billion a year in lost VAT alone, and in fact aviation fuel pays no tax at all. If aviation fuel were taxed at the same rate as unleaded petrol (and why shouldn't it be? - it's more of a luxury), this would raise some £5 billion a year. Effectively, Britain is subsidising its aviation industry through a colossal tax-break of £6.8 billion a year, as well as through £3.8 billion in external costs.

The effect of these tax-breaks and external costs is the equivalent of every man, woman and child in the UK donating an average of more than £180 a year to the aviation industry - not including accident costs, direct and indirect subsidies to supporting industries including the oil industry and the aircraft manufacturing industry (like the £500 million donated very kindly by the taxpayer to BAe to help pay for its new Airbus), or the costs of providing airports with ground transport infrastructure at public expense.

Any serious economist not in the pay of the aviation industry would surely tell you that consumers make choices according to what seems good value for money. Undoubtedly air travel seems like good value for money. But it only seems so because it gets away with externalising vast hidden costs, and because it receives tax-breaks beyond the wildest dreams of most sectors of the economy. This is the biggest duplicity of all in UK aviation policy: it convinces people that air travel is cheap, while in fact they're paying through the nose for it. Or, to be more explicit, people who don't fly (three out of every five Britons last year) are subsidising people who do, and people who fly occasionally are subsidising people who fly a lot.

We must stop building more airport capacity in the mistaken belief that this is an unequivocal good for the economy. Because there's £10.6 billion a year in hidden subsidies, and billions more in balance-of-payments deficit, that says it isn't.