APD and the UK: taking the longer view

It is not often that one can point to a clear victory for the Caribbean; however, that is the message contained in the decision by Britain’s Chancellor of the Exchequer, George Osborne, to return Britain’s Air Passenger Duty (APD) to a two band system.

Using words that all but accepted everything the Caribbean had been saying about the illogicality and unfairness of the APD system, he told the House of Commons on March 19: “We will also reform Air Passenger Duty to end the crazy system where you pay less tax travelling to Hawaii than you do travelling to China or India. It hits exports, puts off tourists and creates a great sense of injustice among our Caribbean and South Asian communities here in Britain. From next year, all long haul flights will carry the same, lower, band B tax rate that you now pay to fly to the United States.”

The changes, which will benefit all destinations presently in Band C (which includes the Caribbean) and Band D, will be introduced from April 2015 on as this is the length of time required by the airlines to alter their fare structures.

Since 2009 Caribbean Governments have been lobbying the British Government over the issue. In a campaign co-ordinated through the Caribbean Tourism Organisation (CTO), it has involved Caribbean Prime Ministers and Ministers, High Commissioners and Ambassadors, the region’s Diaspora in the United Kingdom, and the Caribbean’s many friends in the UK Parliament, plus companies and individuals, in a unique undertaking.

Not only did this disparate group make clear their view on a tax that unfairly favoured travel to the US over the Caribbean, but they demonstrated by staying on message that the Caribbean was capable of mounting a sustained and co-ordinated lobby overseas if it wished to.

What has been little understood, however, is how the overall decision by Britain to change its APD structure was driven by the Caribbean’s evidence-based position and the lead it took in multilateralising the issue, particularly within the Commonwealth.

Unlike most regions of the world, the Caribbean and its tourism ministers recognised that here was a strategic issue. It struck at the heart of one of the few areas where the Caribbean had competitive advantage and could generate future growth: tourism. It was also an issue on which the Caribbean had an army in the field, its Diaspora, living in many UK marginal constituencies who were hard hit in their pockets by the annual inflationary increase in APD.

As such it was recognised early on that here was an issue on which the Caribbean could play political hardball with London. As a consequence it became a running sore in the side of the UK-Caribbean relationship with the issue affecting almost every significant bilateral meeting in recent years.

Despite this and irrespective of an understanding in London that it was seriously damaging relations, British Treasury Ministers were not prepared to consider any alternative that was not revenue neutral, and made clear in private exchanges they could find no technical way in which to re-band the Caribbean alone. With this in mind the Caribbean produced in 2010 a detailed proposal on how a return to a two band system could be revenue neutral. Regrettably, this was not taken up at the time.

However, the turning point came late last year at the Commonwealth Heads of Government meeting (CHOGM) in Sri Lanka where Caribbean ministers and London based High Commissioners made clear their intention with other nations whose support they had obtained, to include language critical of the UK in respect of APD in the final communiqué.

There a tense meeting took place, and eventually a political deal was struck between the Caribbean and London, and in the margins the three most senior UK political figures present at CHOGM, privately agreed the issue would be addressed.

What, however, was uncertain until the Chancellor spoke, was how this was going to be achieved as it was clear that any decision that benefitted the Caribbean alone would be unfair to other nations.  In the end, the Chancellor took a broad based political decision of significant value not just to the Caribbean but also to the Commonwealth and China. In doing so he took the surprising step of accepting a loss to the British Treasury at a time of austerity of up to US$437m per annum (£265m) by 2018.

The decision has been warmly welcomed in the Caribbean.  The CTO Chairman, Beverly Nicholson-Doty, said: “This is a complete victory for the Caribbean, which, led by the CTO, has been lobbying against the unfair system…. We are delighted that the Chancellor has finally accepted the Caribbean’s proposal made in November 2010 to return to the simpler and fairer two band system.”  The Caribbean Hotel and Tourism Association (CHTA) said that the Caribbean region had finally achieved one of its goals and would now be fairly taxed in comparison to a flight to the United States. “Today we achieved a major victory as the playing field has been levelled,” its President, Richard Doumeng, said.

The decision also marks a significant turning point in relations with the UK as it demonstrates the largely unseen efforts of those in Whitehall who value the Caribbean relationship and place an importance on Britain’s continuing commitment to the region’s prosperity and security.

In a rapidly changing and less secure world, in which in recent years the Caribbean has felt marginalised from UK thinking, the UK’s positive decision on APD ought to encourage consideration of the long view of relations with traditional partners that share the same values.

In the region it is not often understood that the Caribbean retains a special place in UK thinking or that Britain continues to exercise significant beneficial influence, in ways that often go unrecognised, with the member states of the European Union, as well as in Washington and Ottawa.

In the coming years it is likely that a continuing UK presence in the region will again come to be seen to have value as well as moral and cultural resonance in ways that newer friends cannot match.

The positive decision on APD and the forthcoming UK-Caribbean Forum offer a moment for reflection on where the Caribbean and the UK’s views might in future coincide, and suggest value in looking ahead, and identifying areas where shared values and interests coincide.

David Jessop is the Director of the Caribbean Council and can be contacted at david.jessop@stagingcaribbean.wpengage.uk