UK Trade: Aviation

Henry Smith Excerpts

Wednesday 1st May 2024 Commons Chamber

[Henry Smith (Crawley) (Con)]

I thank Mr Speaker for granting me this debate on the importance of aviation to UK trade and to the future of our nation’s economy more generally. Let me start by declaring my interest as the founder and current chair of the all-party parliamentary group for the future of aviation.

I believe that aviation is a strategic enabler of the kind of export-led, high-growth economy that Members on both sides of the House want to see. Research being prepared by Manchester Airports Group and WPI Economics, of which I have been given advance sight, shows not only the potential for the UK to become a services sector superpower but the way in which we, as an island trading nation, are disproportionately reliant on aviation in comparison with similar economies. My argument this afternoon is that we should recognise that the UK aviation network—the third largest in the world—is a vital asset and a key component in the economy that we are seeking to build further, and that we therefore need the right kind of supportive policy environment to help it to flourish. That includes leaning into the benefits and opportunities on offer from decarbonising aviation for the sake of environmental protection, going faster and further than other countries precisely because of how much we have to gain economically from the sector, including the great British exporting businesses that rely on aviation for their own success.

Figures published recently by the Office for National Statistics show a 63% real-terms growth in the export of services in the 14 years to the end of 2023. As for goods, the UK air freight contribution across all sectors of the economy is more than £87 billion.

Against that backdrop and given that the UK is already the second largest exporter of services after the United States, respected think-tanks such as the Resolution Foundation are saying that the path to transformative economic growth for the country lies in its becoming a services sector superpower, and striking up new services trade agreements with countries such as Singapore, Japan and Australia.

[Sir Robert Syms (Poole) (Con)]

The World Bank recently conducted a survey in which it looked at the future of world trade. It said that services were the area in which trade was mostly likely to grow and that Britain was very well placed to take advantage of that, especially in the light of all the trade deals that we are doing.

[Henry Smith]

My hon. Friend is entirely right. The United Kingdom has a strong record of being a services economy, and we could go still further now that we have left the European Union and are realising those trade deals, both trans-Pacific and involving other parts of the globe.

The UK should be selling more high-value services in areas such as banking and architecture, in which we have a competitive advantage, to boost productivity and tax revenues and raise the trend rate of growth. In the light of that, Manchester Airports Group has commissioned WPI Economics to study the export growth potential of key sectors such as technology and financial and professional services, in which—as my hon. Friend has just pointed out—we clearly have great strengths. Given the UK’s status as an island trading nation and our distance from some of the key export markets that we need to target, the research is also exploring the importance of aviation and international connectivity to the growth and trade prospects of British businesses in those sectors. The research findings will be published later this month and its publication will be marked by an event here in Parliament, but I am pleased to be able to share a few of the key headlines with the House today.

The sectors in the economy that are most reliant on air travel, from real estate to finance and insurance, create or induce some £1.5 trillion of gross value added—or economic contribution—for the United Kingdom. Key growth sectors of vital importance to the economy and reliant on air travel, such as financial services, creative industries and real estate, are projected to grow by 54%, 25% and 54% respectively in the period to 2033. In 2023 the UK was ranked fourth out of 132 countries in the global innovation index, and the researchers have found that innovation and international connectivity are positively correlated. If the UK wants to grow an innovation-based economy with a concentration of knowledge-intensive industries, it must maintain and grow its direct connections with the outside world. The UK has been ranked fourth in the global knowledge index—the global economy would lose almost 1% of GDP were the UK not to send business travellers abroad—and in respect of the total value of exports, adding more than £900 billion to the British economy and supporting hundreds of thousands of UK businesses.

Having more direct flights from the UK regions to international destinations could help to boost investment, trade, tourism and education opportunities as local businesses seek to leverage the additional connectivity at their disposal. In the north of England, for example, that could play a supportive role in the Government’s levelling-up policy. As for London and south-east England, Gatwick airport’s northern runway proposals would support more long-haul services, enabling increased volumes of cargo and services trade to and from key destinations such as north America, the middle east and Asia. London’s Heathrow airport accounted for more than £200 billion in UK trade passing through in 2022, delivering a positive trade balance of more than £300 billion.

Businesses in these sectors have been interviewed and have set out the role that international connectivity plays, and will continue to play, across a range of key activities: securing investment, clinching deals, building, maintaining and inspecting global supply chains, and promoting knowledge transfer. If we accept that business travel and a healthy, growing aviation sector are preconditions for the type of services-led economic growth that experts say the country should be going after, we need to be clear-eyed about the No. 1 strategic challenge that it faces, namely the achievement of net zero in carbon emissions by 2050 that is the Government’s ambition.

As the UK is disproportionately reliant on aviation to support growth, given its status as an island nation, we should lean into the economic benefits available from its decarbonisation, going further and faster than other countries. The key technology to decarbonise aviation in the medium term is SAF, or sustainable aviation fuels, which can reduce lifecycle emissions by 70% in comparison with conventional jet fuel. The choice for this country is between importing SAF from other countries to decarbonise UK aviation and reach net zero by 2050 and investing in our own domestic sector, which provides a secure, home-grown supply of low-carbon jet fuel to build resilience into the economy and generate thousands of skilled jobs in the process. If we end up importing SAF, we will be at the mercy of volatile international energy markets and, in the event of global scarcity of supply, it will push up airfares, which in turn will push up the cost of doing business for precisely those companies identified in the research I referred to—companies that UK business needs to be travelling and exporting more to grow our economy.

It has to be said that last week the Government made a very positive announcement about measures concerning SAF. First, they are enshrining a sustainable aviation fuel mandate, which means that 10% of all jet fuel needs to come from low-carbon fuels by 2030. Secondly, they are consulting on a revenue certainty mechanism, which could help to incentivise and encourage the building of SAF plants and infrastructure here in the UK. However, a wider package of policy support is needed to create the right environment for this industry to take off, and for the UK to become a global leader. For example, the Department for Environment, Food and Rural Affairs’ waste hierarchy needs to be amended to secure domestic—or “black bin bag”—waste as a viable feedstock or input into making sustainable aviation fuels.

Using household waste to make green jet fuel is not just important because of the way it protects and helps to sustain a strategic enabler in aviation; research from transport sustainability experts ICF shows that using such waste to make SAF, instead of its current use in incineration to produce electricity, would help cut UK carbon emissions too. Indeed, the reduction in carbon emissions would be at least five times greater, not least because nearly half of all electricity in the UK already comes from renewable sources—again, thanks to the great strides that have been made over the last decade by this Government.

A cross-departmental plan is needed across Whitehall to recognise aviation’s role in our make-up as an island trading nation, and in the type of economy we need to grow to become even more competitive. My suggestion to the Minister is that the Department for Business and Trade has a critical role to play in this plan because of the sector’s role in underpinning the success of services exports on which this country’s future prosperity relies.

The UK does not have to choose between growing our economy through international travel, or travelling less and protecting our environment. By innovating and being global leaders in new sustainable aviation fuels technology, we can increase our services and goods sectors, and be at the forefront of new green technologies. We have some iconic British brands that have already demonstrated this. Last November I experienced the first transatlantic flight to use 100% sustainable aviation fuel when Virgin Atlantic, headquartered in my constituency, flew from London Heathrow to John F. Kennedy airport in New York, powered by Rolls-Royce Trent 1000 engines using sustainable aviation fuels. I believe that we should be optimistic about our future economy and our environmental protection, with Britain a global leader in both.