City Insider: Tough times for travel? You ain’t seen nothing yet

City Insider - A City perspective on the travel industry from FT journalist David Stevenson

The industry is right to fight APD – but if you listen to scientists and policy-makers there could be far, far worse things on the horizon

I suspect that if I was to stand up in a polite audience of travel industry execs and suggest that the tax placed on airline travel isn’t actually that bad… well I’d probably be howled down and dunked in tar.

Of course APD is a joke, and of course it’s entirely wrong that the industry is being used as convenient source of incremental revenue. And yes, the industry must resist it and point out forcibly that travel matters to the UK economy.

Should there be any need for academic evidence and principled argument then I suggest the industry look at Sir James Mirlees’s recent report on taxation for the Institute of Fiscal Studies. This is a masterpiece of economic thinking and asks policy types, politicians and industry leaders to return to basics and understand how a more sensible tax system can be constructed.

The key observation is that politicians must seek “neutrality”. Sir James report adds that “tax systems that distort people’s behaviour by treating similar activities differently without very good reason – as the UK system currently does – create inefficiency, complexity and opportunities for avoidance.”

This is all sensible stuff which no sensible person outside the Treasury could disagree with. If we accept the logic then we must also accept that APD is  flawed, but it is incumbent upon the travel industry to come up with something better and fairer. My worry is that sensible dispute will obscure the much more important debates brewing about what comes next in the world of taxation, and the environment.

Back in autumn I spent a fascinating couple of days with a select bunch of green policy makers and academics, thinking ‘out of the box’ and talking ‘blue sky’ ideas.

Their tentative (and private) conclusions are of immense importance and probably represent the medium term direction of government environmental policy. Obviously I wouldn’t want to break the Chatham House rules in force but I would suggest that some or all of the following are on the cards in a post APD world:

1. I think we’ll see a proper carbon tax regime emerge within the next five years. This tax on emissions by everyone would be measured more accurately and no industry will be exempted. One participant from Brussels even went so far as to suggest that any airline or country that tried to wriggle out of this flat and progressively increasing emissions tax (i.e. the US) would have its aircraft banned from European airspace.

2. Most of the scientific experts reckon that we’re past the point of no return with carbon concentrations and that the global recession and the scandal over the UEA Climate Change emails has simply diverted attention from what is a rapidly worsening situation. The consensus of all the policy makers, bureaucrats and scientists I talked to is that we’re now into the mitigation game, forcing us to spend vast amounts of money on geo-engineering projects in the 2020s and even bigger amounts of money on compensating the tropical world from a series of devastating climatic changes. This would suggest that the levels of carbon tax applied will be vastly greater than a ‘normal’ disincentive level and will be very punitive.

3. Shipping and especially cruise ships are next in line for green invective. Three different experts mentioned to me that they intended to highlight the ‘crazy’ energy economics of the cruise industry. Lots of flowery talk about using bioethanol or better-designed ships with greater fuel efficiency will be subject to intense criticism by green critics and scientists.

4. The land use planning framework will be aggressively used to enforce a great many major changes that will affect the hotel sector in particular, but also the airport sector. There will be a presumption against any expansion of runway capacity within five years.

5. The hotel industry will find itself under sustained attack. Out-of-town hotels with large car parks or lots of airline-sourced clients will be asked to tender carbon footprint assessments based on the travel plans of their clients. Any institution that fails to cut this extended footprint down to size will face punitive planning sanctions.

6. Train travel will become much more important. The idea here is that the European train companies will ‘up the ante’ with multi-nodal networks that allow travellers to move around the continent in a seamless fashion with minimum hassle and at low cost. This all sounds crazy at the moment, if only because rail travel is heinously expensive and trying to organise rail companies is like herding cats. But small changes are already here. I know of a number of City bigwigs who take the train to the south of France for their villa holidays. I even know of one hedge fund manager who only uses the Eurostar to France and SNCF to Monaco. His view: “Trains are much nicer, much easier and much less hassle.”

7. The big change mooted was a carbon allowance per person based on physical limits. This idea was first suggested to me 10 years ago by a green activist called Mayer Hillman. This radical school of thought – essentially anti-travel – is gaining ground fast and the only thing that’s forestalling it is a punitive carbon tax (see point one). Personal carbon allowances would be kept deliberately low in the developed Western world so that we can allow the developing world to benefit from travel. They would then be progressively decreased over time, forcing consumers to make tough decisions. This is 1940s rationing with a vengeance.

I’m sure that most readers will consider this alarmist stuff. And maybe they are right. But we are reckoning without a climatic emergency forcing a profound change in our thinking. Before the financial emergency of the last three years, anyone who had suggested  nationalising banks would have been labelled a Trot Sparticist. Now they’re likely to be a government minister.

Maybe there will never be such an emergency. But I had four lengthy discussions with scientists, all of whom told me that they believe we’ll begin to see very, very bad things start to happen by 2015, with problems escalating in 2020 through to 2025.

Two leading world experts told me that they believe a tipping point is just five years away, and that the effects could be cataclysmic well before 2025. This is all being listened to at the very highest level, with the some of the most ardent proponents of taking major action residing in the military and security services.

If they’re right, all our worry about APD is just the beginning, and much, much worse is in store for the travel sector. It could be that our children look back on our era as one of unprecedented globalisation when travel was a force for good and change. Their era, by contrast, may be a great deal more parochial and homely.

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