The forthcoming Budget – Travel Sector Perspective

10 November 2017

With barely two weeks to go before the budget, there is no shortage of people telling the Chancellor what he should be doing to make things better.

The economy could be in better shape, productivity remains low, interest rates have just risen and will continue to do so in the coming year and inflation is beginning to raise its head. Overseas costs have increased due to the fall in the value of sterling meaning holiday prices are up for 2018 which, together with worries over Brexit, have lead many commentators to suggest next year may not be a boom year for travel. 

So, what would make things better for the travel industry, and how likely are we to see them?

The travel industry has been demanding, on an annual basis, a cut in Air Passenger Duty. The airlines and some travel trade associations maintain the tax reduces demand with those departing from UK airports paying several times more than from other EU countries (only a small proportion of whom actually charge departure duties). But with passenger numbers constantly increasing, this may be a difficult argument to win. 

In the UK, APD generates approximately £3 billion for the treasury and any reduction would necessarily entail other politically sensitive areas such as health, education and social services being squeezed. Then there is also a danger that if the tax is cut, airlines will just raise fares, leaving the passengers, and the travel industry, no better off. The recent increase in oil prices will certainly put pressure on airlines.

The most important factor for the sale of holidays is an increase in the “feel good factor”, and putting more money into people’s pockets is the easiest way of doing that. Tax cuts however seem unlikely, but stimulating the economy is vital, so an increase in personal tax allowances would help. Business rates have also become a real burden for those with a large High Street presence so further business rate relief could help as could a promise of no increase in Corporation taxes. 

However in practice, the impact of changes to the economy are complex so not every stimulus is guaranteed to raise the demand for travel. For example the housing industry has asked for a cut in Stamp Duty to help stimulate the housing market but if more people decide to move, the amount of disposable income left for travel may fall. The car industry also appears to be suffering at the moment with both new car and second-hand sales falling – bad news for the car industry but may be positive for the travel industry if people decide not to spend money on other highly priced items especially as the British love affair with travel continues. 

2018 already promises more legislation for the travel industry in the first 6 months than the last 10 years which are outside the Chancellor’s control. Where he could make a difference to travel and other sectors is to make sure there are no more rises in the costs of employing staff, no increase in income tax or national insurance. If he doesn’t the travel trade may see business fall even further after 2019.

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