A £2.5bn proposal to expand one of London’s top airports is facing fresh challenges amid rising tax burdens, as the aviation sector feels the pain of Rachel Reeves’ business rates raid.
The owner of Luton Airport, Labour-run Luton Council, had put together plans to build a new terminal and increase capacity from 18m to 32m a year by 2043.
But the proposals, which have been approved by the government, could be impacted by changes to business rates unveiled at last year’s Budget, with revaluations set to come into effect in April.
The airport is projected to see its business rates bill more than double by 2029, with payments to HMRC set to rise from just under £7m this year to £14.5m in three years, according to fresh analysis.
A pullback in investment plans from major airports would deliver a blow to Reeves, with the Labour government depending on major infrastructure projects to improve productivity.
A statement from Luton Airport said any extra tax burden would be “likely to impact” investment decisions as officials urged the government to align policies to its mission to support airport expansions.
The statement added that it would continue to work with the government in an ongoing review into business rates for airports along with other industry representatives. The consultation is due to end next month.
The large airport expansion is still scheduled to go ahead, but a spokesperson said: “With airport expansion at the heart of the Chancellor’s growth mission, it’s important that all Government policies align to support this ambition.
“Any additional tax burden is likely to impact future investment decisions, however we welcome the Treasury’s engagement on this important issue and as an industry continue to work with them as part of the long-term review into how airport business rates are calculated.”
Gatwick Airport officials said they were still analysing the impact of business rates doubling to £140m by 2029 after having said in late October that any rise above 40 per cent would affect investment plans.
The group said the consultation was “crucial” to ensure airports avoid the worst outcome of Reeves’ tax policies the next time revaluations are drawn up.
A spokesperson for Manchester Airport last month said it would “look again” at plans to invest £2bn in its airports over the next five years.
Airports to be hit with mega tax bill
Analysis conducted by the Conservative Party and verified by City AM shows major airports are set to pay more than double in business rates in three years.
Heathrow is set to suffer the biggest rise from just under £117m in the current financial year to £244m by 2029.
The industry group AirportsUK has also found that the rise in business rates bills across the sector will be more than double unless the Labour government reneges on its Budget measures.
“The Chancellor has staked the UK’s growth on airports, and while the changes to transitional relief announced in the Budget are very welcome, an increase in their business rates of over 100 per cent could still force some to review billions of pounds of transformational investments across the UK and potentially puts thousands of jobs at risk in the longer-term,” said Karen Dee, chief executive of AirportsUK.
“This will obviously have a knock-on effect for the businesses that depend on airport connectivity in all areas of England, negatively impacting local economies that depend on the supply chains, tourists and connections their airports provide.
Shadow transport secretary Richard Holden said: “It tells you all you need to know that Labour are sticking a half a billion pound tax hike on airports just as they are being asked to invest, expand and compete globally.
“You cannot build a pro-growth economy while taxing the infrastructure that keeps it airborne. Labour’s tax policy is risking jobs and making flying more expensive, all to paper over the holes in their own economic catastrophe.”
A government spokesperson said: “We’re delivering a £4.3bn support package to cap business rates bill increases at 30 per cent before other reliefs for the largest properties, including airports. Without intervention those would be up to 500 per cent.”
