Thursday, 20 October 2011
A response to that question is: “I wouldn't start from here”.
Here is an uncertain place with no road maps or place signs to direct us. History is no guide and past practice useless.
Economics is not a science and even the elders and wise men cannot see how Governments can pay back their debts whilst simultaneously boosting demand.
So we have set the scene for stagnancy. People will spend less and try to pay off their credit card debts.
For the Government, paying back debt means reducing costs by spending less and making public sector workers redundant. While raising tax revenues!
Vat at 20% and a 50% income tax ceiling does not guarantee increased revenue as the Laffer curve shows. Increased petrol prices should have benefited the Government coffers but didn't because ordinary people used their cars less.
Similarly high Air Passenger Duty simply accelerates the drift away from long haul destinations.
John Maynard Keynes explained the problem by stating that:
Markets are never perfect because information is rarely complete or accurate, because people did not always behave rationally and because there were often obstacles. In his words “there is always irreducible uncertainty"
Tourism is a business which has been diminished by the recession. In 2008, UK residents made 69 million trips abroad. The estimates for 2011 will probably not exceed 57 million, a reduction of 17.4%. The shrinking pound doesn't help.
Countries like the USA have increased flights and targeted businessmen, while India seeks to attract UK citizens with Indian ancestry.
For countries that cannot do that, the solution must be: To make the offering more affordable. Improving access by providing more flights and promoting the destination as highly desirable, unique with reasons why a visit should not be deferred.
Canada is doing all that and despite it's distance, high APD, and an exchange rate disadvantage, deserves to succeed.