14th November 2006

Air travel produces record balance of payments deficit

The rapid growth in cheap leisure flights is having a dramatic effect on the UK Balance of Payments according to figures just published by the Office of National Statistics (‘ONS’).  These show a record £18.8 billion trade deficit on air travel in 2005 compared to a deficit of just £2.0 billion ten years earlier.

The figures (from ‘Travel Trends 2005’ and ‘The United Kingdom Balance of Payments, 2005’) will come as a serious embarrassment to the Government whose controversial airport expansion plans would allow for a near trebling of passenger numbers.  The Government has always claimed that airport expansion is justified because of alleged benefits to the UK economy but these latest Balance of Payments figures appear to blow that claim out of the water.

Worryingly, since 1995, the trade deficit on overseas air travel has risen rapidly with almost all growth coming from the leisure rather than the business sector.  Department for Transport figures (‘Passenger Forecasts, Additional Analysis’) show that this is driven by the growing availability of cheap flights.  If present trends continue the deficit would reach a staggering £64 billion by 2016.

The ONS report shows that in 2005 a record 54 million overseas flights were made by UK residents who spent £28.0 billion overseas.  This compared to just 22 million foreign visitors coming to the UK and spending £12.3 billion.  In addition there was a net trade deficit of more than £3.0 billion on the purchase of airline tickets.

When business travel is excluded the imbalance is even greater.  Business travel by UK residents accounted for 7 million flights – only 13 percent of the 2005 total.  Meanwhile, overseas leisure trips by UK residents accounted for 47 million flights in 2005 – almost three times as many as the 16 million foreign tourists who flew into the UK last year.  UK spending on leisure trips abroad amounted to £23.9 billion in 2005 compared to only £8.5 billion earned by the UK from overseas tourism.

The figures will also come as a serious blow to the aviation industry which has always claimed that economic benefits to the UK justify the environmental damage which air travel causes.  Following a wave of recent reports about the global warming impact of aircraft carbon dioxide emissions, the industry is desperately trying to fend off mounting calls for an end to its blanket fuel duty and VAT exemptions as a means of stemming the growth in the number of flights.

Brian Ross, Economics Adviser to Stop Stansted Expansion (‘SSE’), described the aviation industry’s economic claims as fraudulent:  “While it may have been true in the past to say that air travel was good for the British economy, this is now an outdated view as a result of the growth in cheap leisure flights.  We are rapidly becoming a nation of holidaymakers but how on earth can it benefit the British economy to subsidise an Irish airline which buys American planes in order to transport vast numbers of British people to spend their money in France and Spain?”

Mr Ross continued: “It is no surprise that the hotel trade and others in the domestic tourism industry, for example in the Cotswolds, Lake District and West Country, are experiencing tough times whilst the streets of Prague, Budapest and Rome are teeming with British tourists courtesy of Easyjet and Ryanair.  The Government needs to urgently rethink its whole strategy for airport expansion given that the impact on the economy is backfiring in such dramatic fashion.”

The Government is due to publish a review of progress in implementing its airport expansion policies by the end of the year but pressure is growing for this to be a ‘root and branch review’, principally because of increasing recognition of the impact of air travel upon climate change.

NOTES
1  ‘Travel Trends 2005’ was published by the Office of National Statistics ‘ONS’) on 8 Nov 2006 – see: www.statistics.gov.uk/downloads/theme_transport/traveltrends2005.pdf.  This provides information (Tables 2.07, 2.08. 3.07 and 3.08) on inward and outward visitors to/from the UK travelling by air including expenditure data but excluding expenditure on air tickets.  The latter can be obtained from ‘United Kingdom Balance of Payments 2005’ (‘The Pink Book’) also published by ONS –  see: www.statistics.gov.uk/downloads/theme_economy/PinkBook2006.pdf.  The information on air tickets purchased by overseas residents from UK airlines (i.e. exports) and air tickets purchased by UK residents from overseas airlines (i.e. imports) is contained in Table 3.2 ‘Air Transport: Passenger Revenues’ showing exports, imports and the balance (pages 43-45).

2.  The 2005 trade deficit figure of £18.8bn is derived by adding together the £15.734bn Balance of Payments deficit on tourism spending (air travel) and the £3.049bn Balance of Payments deficit on airline tickets.  No account has been taken of the cost of importing the aircraft or aviation fuel.

3. ‘Passenger Forecasts, Additional Analysis’, Department for Transport, para 3.1 et seq. – see: www.dft.gov.uk/stellent/groups/dft_aviation/documents/page/dft_aviation_031861.pdf or available from SSE office upon request.

Campaigning against proposals to expand Stansted Airport