Driving Growth. The Economic Value of Outbound Travel

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1 Driving Growth The Economic Value of Outbound Travel

2 The economic value of outbound travel to the UK economy A study on the economic size of outbound travel and the impact of the sector on the UK economy Report for ABTA The Travel Association May 2012 Centre for Economics and Business Research Ltd. Unit 1, 4 Bath Street, London EC1V 9DX t: f: w:

3 2 Disclaimer Whilst every effort has been made to ensure the accuracy of the material in this document, neither Centre for Economics and Business Research Ltd nor the report s authors will be liable for any loss or damages incurred through the use of the report. Authorship and acknowledgements This report has been produced by Cebr, an independent economics and business research consultancy established in The study was led by Oliver Hogan, Cebr Head of Mircoeconomics with analytical and research support from Colin Edwards, Cebr Economist. The views expressed herein are those of the authors only and are based upon independent research by them. This study has been commissioned by ABTA The Travel Association and has utilised a combination of data provided or pointed out to us by ABTA and those available in the public domain through ONS, Nomis etc. The report does not necessarily reflect the views of ABTA. London, May 2012

4 3 Contents Contents... 3 Executive Summary... 4 Introduction... 4 Background, context and methodology... 4 Contribution to GDP... 5 Contribution to UK employment... 8 Contribution to the UK Exchequer Introduction and background Purpose of the study Overview of our study and methodology Setting the scene: key outbound travel trends Structure of this report Methodology and assumptions used to define and size UK outbound travel Defining and sizing UK outbound travel using the Tourism Satellite Accounts Going beyond the Tourism Satellite Accounts Incorporating UK outbound travel in the supply-and-use framework Determining size, economic contribution and impacts UK outbound travel: size, economic contribution and impacts Contribution of outbound travel to UK GDP Contribution of outbound travel to UK employment Contribution to the UK Exchequer Methodology for the analysis of UK national and regional outbound travel Methodology for the national and regional analyses The outlook for the regions Summary of economic impacts in the regions UK outbound travel: contribution to English regional and UK national economies North East of England North West of England Yorkshire & the Humber East Midlands West Midlands East of England London South East of England South West of England Wales Scotland Northern Ireland... 66

5 4 Executive Summary Introduction This study, commissioned by ABTA - The Travel Association, investigates for the first time the full extent of the size and importance of the UK outbound travel industry. It reveals that the commercial activities powered by the British and Northern Irish public s desire to travel abroad now outstrip the entire UK farming and fishing industry. And, so important is outbound travel to the UK economy, that it provides more jobs than the entire arts and entertainment sector and is neck and neck on contributions to Gross Domestic Product and industry size. This report, by the Centre for Economics and Business Research (Cebr) finds that outbound travel itself is now sufficiently important to be classed as an industry in its own right - even without taking into account domestic tourism and lucrative visits to Britain from abroad. In what follows, we present our findings on the contribution of outbound travel to UK GDP, employment and to the Exchequer. However, before doing so, we provide some background and context. Background, context and methodology Economic assessments of the impact of tourism on the UK economy have tended to focus on the value of inbound and domestic tourism, with little to no attention paid to the contribution of outbound travel. Publicly available data sources on outbound travel provide little in the way of insights on the importance and value of outbound travel to the UK economy. Rather, they tend to focus on UK residents visits abroad and how much they spend in the foreign countries they are visiting. The exception is the Tourism Satellite Accounts (TSAs). These report total expenditure of 26.9 billion by UK residents within the UK as part of their trip abroad in This is compared, in Figure 1 below, with domestic tourism expenditure on inbound and domestic trips. By this measure, outbound travel accounts for 24 per cent of the total UK tourism sector and is more valuable to the UK economy than inbound tourism. Also illustrated in Figure 1 for comparative purposes are the Deloitte (2010) estimates of domestic and inbound tourism expenditure in the UK. However, a comparison between Cebr s estimate of outbound travel final demand expenditure ( 31.2 billion in 2009) and the ONS statistic on spend by UK residents abroad suggests that domestic spend on outbound travel services is almost exactly equal.

6 5 Figure 1: Comparative analysis of Cebr outbound travel expenditure estimates with other available sources Expenditure billions Inbound Outbound Domestic UK residents abroad Source: ONS Tourism Satellite Accounts 2008, Deloitte (2010), ONS Monthly Overseas Travel & Tourism, Cebr analysis While the TSAs are useful and, indeed, provided a good starting point for our study, we have not confined ourselves to their contents, a decision based on our discussions with ABTA, which revealed economic activities, products and services and cross-sectoral relationships that contribute to outbound travel but that are not reflected in the TSAs. We set about the task of developing a broader definition or scope of the outbound travel industry. This essentially involved the reassignment of elements of other industries to the newly created for the purposes of this study outbound travel sector, and remapping the relationships between this group of parts of industries with the rest of the economy. 1 We proceed to present the findings of our analysis. Contribution to GDP In broad terms, ABTA and Cebr have discovered, though extensive investigation and economic modelling of the latest official data that the outbound travel industry accounts for approximately 1.6 per cent of UK GDP. This equates with an absolute GVA contribution of 21.4 billion in This was done using the ONS 2009 supply-and-use tables. The supply-and-use framework is the most detailed official record of how sectors of the economy interact with other sectors, with consumers and with international markets in producing the nation s GDP and national income. Where reliable information was not available to map these relationships precisely, we used the relationships inherent in the broader supply-and-use tables. Using the supply-and-use framework to analyse a complex sector such as outbound travel is the best means of ensuring consistency with the national accounting framework. 2 GVA or gross value added is a measure of the value from production in the national accounts and can be thought of as the value of industrial output less intermediate consumption. That is, the value of what is produced less the value of the intermediate goods and

7 6 For illustrative purposes, we compare the contribution of outbound travel to that of some of the smaller and larger sectors of the economy in Table 1 below, as well as with existing estimates for domestic and inbound tourism. While the contribution of outbound travel is small relative to these broad sectors, a 1.6 per cent contribution to GDP is not insignificant and, indeed, exceeds the contribution of several of the smaller sectors, such as the utilities sector, the agriculture, forestry and fishing sector, and the arts, entertainment and recreation sector. Table 1: Outbound travel s GVA contribution relative to some of UK s largest sectors SECTOR Contribution to GDP Total GVA (2009 estimate) Manufacturing 14.81% 125,862 Financial services 9.11% 121,654 Inbound and domestic tourism (Deloitte) 4.00% 52,000 Energy 1.69% 21,146 OUTBOUND TRAVEL 1.62% 21,444 Arts, entertainment and recreation 1.58% 18,282 Utilities (water & sewerage) 1.19% 15,173 Source: ONS Supply-and-Use tables 2009, Deloitte (2010), Cebr analysis However, the economic impact of outbound travel in the UK is not confined to this direct GVA contribution. We used input-output modelling to produce outbound travel multipliers, which led to the finding that, for every 1 of GVA generated by the outbound travel sector, an additional 1.44 of GVA is generated in the wider economy through indirect and induced impacts. This outbound travel GVA multiplier of 2.44 is illustrated and explained further in Figure 2 below. This produces a total absolute GVA impact of outbound travel of a 54.2 billion in Cebr s estimates for the three years are shown in Table 2 below. Table 2: Total absolute impacts of UK outbound travel ( millions) Economic impacts of outbound travel Direct GVA contribution ( m, current prices) 21,903 21,444 22,198 Total GVA impact ( m, current prices) 53,521 52,398 54,240 Source: Cebr analysis services used as inputs to produce it. GVA is also commonly known as income from production and is distributed in three directions to employees, to shareholders and to government. GVA is linked as a measurement to GDP both being a measure of economic output. That relationship is (GVA + Taxes on products - Subsidies on products = GDP). Because taxes and subsidies on individual product categories are only available at the whole economy level (rather than at the sectoral or regional level), GVA tends to be used for measuring things like gross regional domestic product and other measures of economic output of entities that are smaller than the whole economy. Note that outbound travel s GVA of 21.4 billion constitutes a 1.7 per cent share of UK GVA. This difference, in terms of percentage shares of the respective UK totals is a function of high taxes on air travel through the Air Passenger Duty.

8 7 Figure 2: The UK outbound travel industry s GVA multiplier Outbound travel GVA multiplier = 2.44 Direct impact 1 + Indirect impact Induced impact 0.70 A boost in final demand for outbound travel triggers a supply response from outbound travel service providers. Assume that this final demand boost and supply response causes outbound travel GVA to increase by 1 To increase their supply, outbound travel providers must increase their demands on their suppliers, who increase demands on their suppliers and so on down the supply chain. This generates the indirect impact, an increase in GVA throughout the supply chain of 0.74 for every additional 1 outbound travel GVA The combined direct and indirect impacts have an impact on household income throughout the economy, through increased employment, profits etc. A proportion of this income will be respent on final goods and services, producing a supply response by the producers of these goods/services and further impacts through their supply chains etc. This produces the induced impact of 0.70 for every additional 1 of outbound travel GVA Source: Cebr analysis We have also assessed the size and contribution of outbound travel to each of the English regions and UK nations. A summary of our results is presented in Table 3 below, where the nations and regions are ranked according to the direct percentage contribution made by outbound travel to the aggregate GVA of those nations and regions. As the table shows, London shows by far the largest absolute direct and total GVA impacts from outbound travel. The London region also benefits in terms of outbound travel s share of the London economy at just below 2.5 per cent. However, outbound travel appears to be most important to the economy of the South West of England. Relatively large absolute impacts are also observed in the South East, the North West, Scotland and the East of England. However, the percentage contribution to these regional economies varies from 1.5 per cent in the East and South East of England to 1.7 per cent in Scotland. The smallest absolute impacts are observed in Northern Ireland but, in terms of share of the regional economy, the East Midlands outbound travel sector appears to be the smallest.

9 8 Table 3: GVA contributions of outbound travel to the UK nations and English regions Direct Direct GVA Total regional UK nation / English region contribution to contribution ( m) GVA impact ( m)* regional GVA (%) South West 1, % 2,372 London 6, % 12,941 Total England 17, % 31,068 Scotland 1, % 2,703 North West 1, % 3,373 North East % 1,184 Northern Ireland % 752 South East 2, % 4,574 East of England 1, % 2,816 Yorkshire & The Humber 1, % 2,254 West Midlands 1, % 2,081 Wales % 1,044 East Midlands % 1,747 * Based on Cebr's estimates of regional GVA multipliers (see main body of report) Source: Cebr analysis Contribution to UK employment Cebr s estimates suggest that the outbound travel industry accounts for about 2.6 per cent of total UK employment. This equates with 627 thousand FTE jobs. 3 We note that the employment contribution of outbound travel is significantly larger than the industry s GVA contribution. This reflects the relative labour intensity of the sector. We again compare the employment contribution of outbound travel to that of some of the smallest and largest sectors of the economy in Table 4 below. This shows, for example that outbound travel contributes nearly two-thirds as many FTE jobs as the financial services sector. 3 FTE stands for full-time equivalent. FTE jobs or FTE employment includes employees as well as the self-employed sole traders, partnerships etc.

10 9 Table 4: Outbound travel s employment contribution relative to some of UK s largest sectors SECTOR Contribution to UK Total FTE jobs (2009 employment estimate) Manufacturing 9.52% 2,319,182 Inbound and domestic tourism (Deloitte)** 4.40% 1,360,000 Financial services 3.81% 928,709 OUTBOUND TRAVEL 2.57% 627,176 Arts, entertainment and recreation 2.15% 507,179 Utilities (water & sewerage) 0.61% 147,700 ** Deloitte Economic Contribution of the Visitor Economy 2010; Based on workforce jobs (full-time and part-time). FTE estimate would be lower. Source: ONS Business Register & Employment Survey, Deloitte (2010), Cebr analysis However, as with GVA, the employment impact of outbound travel in the UK is not confined to this direct employment contribution. We used input-output modelling to produce an outbound travel employment multiplier, finding that, for every 1 FTE job in outbound travel industry, an additional 1.01 jobs are supported in the wider economy through indirect and induced impacts. This outbound travel employment multiplier of 2.01 is illustrated and explained further in Figure 3 below. This produces an estimated total FTE employment impact of outbound travel of 1.26 million FTE jobs in Further estimates for 2008, 2010 and 2011 are shown in Table 5 below. 4 Table 5: Total absolute impacts of UK outbound travel (FTE jobs) Economic impacts of outbound travel Direct employment contribution (FTE jobs) 657, , , ,920 Total employment impact (FTE jobs) 1,323,372 1,262,028 1,244,397 1,257,527 Source: Cebr analysis 4 We note that our jobs estimates for 2011 benefit from more timely employment data, relative to GVA data, which only extends to 2010.

11 10 Figure 3: The UK outbound travel industry s employment multiplier Outbound travel employment multiplier = 2.01 Direct impact 1 FTE + Indirect impact 0.56 FTE + Induced impact 0.45 FTE A boost in final demand for outbound travel triggers a supply response from outbound travel service providers. Assume that this final demand boost and supply response causes outbound travel employment to increase by 1 FTE To increase their supply, outbound travel providers must increase their demands on their suppliers, who increase demands on their suppliers and so on down the supply chain. This generates the indirect impact, an increase in employment throughout the supply chain of 0.56 of a FTE for every additional FTE in outbound travel The combined direct and indirect impacts have an impact on household income throughout the economy, through increased employment, profits etc. A proportion of this income will be respent on final goods and services, producing a supply response by the producers of these goods/services and further impacts through their supply chains etc. This produces the induced impact of 0.45 of a FTE for every additional FTE in outbound travel Source: Cebr analysis The results of our assessment of the contribution of outbound travel to employment in each of the English regions and UK nations are presented in Table 6 below, where the nations and regions are ranked according to the direct percentage contribution made by outbound travel to the total FTE employment in those nations and regions. London again shows the largest absolute direct and total employment impacts from outbound travel. The London region also benefits most in terms of outbound travel s share of total employment in the London economy at 4.5 per cent. Relatively large absolute impacts are also observed in the South East of England, the East of England, the North West of England and Scotland. However, the percentage contribution to these regional economies varies from 2.3 per cent in Scotland to 2.8 per cent in the East of England. The smallest absolute impacts are observed in Wales, which also shows the smallest impact in terms of percentage of that nation s total employment.

12 11 Table 6: Employment contributions of outbound travel to the UK nations and English regions UK nation / English region Direct employment contribution (FTE jobs) Direct contribution to regional employment (%) Total regional employment impact (FTE jobs)* London 168, % 279,022 East of England 59, % 91,710 Northern Ireland 17, % 27,949 South East 78, % 128,744 North West 60, % 96,045 Scotland 48, % 74,378 East Midlands 35, % 57,234 North East 16, % 25,024 West Midlands 36, % 58,736 Yorkshire & The Humber 34, % 51,676 South West 31, % 52,009 Wales 12, % 17,658 * Based on Cebr's estimates of regional employment multipliers (see main body of report) Source: Cebr analysis Contribution to the UK Exchequer Cebr s estimates suggest that the outbound travel sector contributed more than 6 billion to the UK Exchequer in 2009, or 1.78 per cent of the aggregate HMRC tax take. This aggregate contribution is broken down in Table 7 below. Table 7: Contributions of outbound travel to the UK Exchequer Tax type Contribution to UK Exchequer ( m) Percentage of UK total Indirect taxes (incl. APD) 1, % Taxes on production (business rates, employers' NICs) % Corporation tax % Income tax and employees' NICs 3, % TOTAL 6, % Source: ONS supply-and-use tables 2009, HMRC, Cebr analysis

13 12 The 6 billion contribution includes 1.2 billion of indirect taxes, the bulk of which is outbound travel s share of Air Passenger Duty contributions. 5 Business rates and employers national insurance contributions (NICs) amounted to about 466 million, while the corporation tax contribution was 701 million. Income taxes and employees NICs constitute the lion s share of outbound travel s total tax contribution at 3.9 billion. 5 We note that total Exchequer revenues from APD were reported as 1.8 billion by HMRC for calendar year However, this includes inbound visitors to the UK, who are then levied on departure. The share of this allocated to outbound travel through our supply-and-use framework is about 1 billion.

14 13 1 Introduction and background This is the report on a study by Centre for Economics and Business Research (Cebr) on the economic size of outbound travel and the impact of the outbound travel industry on the UK economy. The study was commissioned by ABTA The Travel Association. 1.1 Purpose of the study Economic assessments of the impact of tourism on the UK economy have tended to focus on the value of inbound and domestic tourism, with little to no attention paid to the contribution of outbound travel. 6 The purpose of this report is to fill this gap by examining the size of outbound travel in the UK and the contribution it makes to the UK economy, that of its nations and the English regions. What the report demonstrates is that there are not insignificant elements of several industries in the UK that exist for the primary purpose of serving outbound travel, and that they are worthy of consideration as part of a wider travel economy Overview of our study and methodology Publicly available data sources on outbound travel provide little in the way of insights on the importance and value of outbound travel to the UK economy. Rather, they tend to focus on UK residents visits abroad and how much they spend in the foreign countries they are visiting. 8 The exception is the Tourism Satellite Accounts (TSAs), which provided our starting point for the study. They identify expenditure by outbound tourists domestically in the UK. Having digested these, we set about isolating those parts of relevant industries that are geared to the provision of the goods and services that form part of the outbound travel/tourism offering. The starting point for this was to establish the precise scope of the study through what might be termed a definition of outbound travel that could form the basis of the analysis. In formulating such a definition, we used as our guide the structure of the economy that provides the basis for the UK Office for National Statistics (ONS) system of national accounts. Economic activities are broken down according to the Standard Industrial Classification (SIC) system, the most recent being SIC Using the highest level of aggregation (SIC2007 Sections or 1-digit sectors ), the following is a summary of what we were requested to capture in our study: 6 See, for example, the joint study by Deloitte and Oxford Economics, entitled The economic contribution of the Visitor Economy: UK and the nations, June This study was an update of the September 2009 study entitled The economic case for the Visitor Economy. In a UK visitor economy, outbound travellers are perhaps naturally excluded. 7 This hypothetical travel economy would incorporate Deloitte s Visitor Economy. Yet the focus of this study remains outbound travel. 8 In other words, they only provide an indication of what outbound travel contributes to economies other than the UK.

15 14 Transportation and storage: those parts of the transportation sector that serve outbound travel, including by air, water and land; Administrative and support services: the parts of this sector relating to the activities of travel agents and tour operators as they relate to outbound travel. Accommodation and food service activities: accommodation and food services that are provided to outbound travellers on their way out of the country. Wholesale and retail: the parts of this sector related to retail spend by outbound travellers on items they purchase for their holiday. Information and communications: those elements of the publishing industry that produce brochures, guide books and internet-based information on outbound tourist destinations. Professional, scientific and technical activities: those elements of the advertising industry dedicated to marketing outbound tourist destinations within the UK, as well as private consultancy services that generate revenues from outbound transport and tourism. Financial and insurance services: travel insurance for outbound travellers and activities related to financial protection for outbound travellers through the bonding system. Arts, entertainment & recreation: the numerous fairs and trade shows up and down the UK on outbound holiday destinations. Public administration & defence services: those elements of the public sector geared towards serving outbound travel, such as passport services, border control and certain functions of the Civil Aviation Authority and Department for Transport. While some of these activities are geared towards the provision of goods and services directly to outbound travellers, others are incorporated through their role in the supply chain of the outbound travel sector. Outbound travel also has a role in the supply chain of every other sector through business travel. While outbound travel is, therefore, a relatively complex industry to isolate, we have sought to see through this complexity in our analysis. To establish the size and economic impact of outbound travel on the UK economy, we adopted the framework provided by the ONS supply-and-use tables. These tables show relationships between the supply of and demand for goods and services, as well as the interactions between different sectors of the economy in producing their output. Using the supply-and-use framework to analyse a complex sector such as outbound travel is one of the best means of ensuring consistency with the national accounting framework. This meant that it was important to be able to assign a role within these tables for outbound travel, which essentially involved the reassignment of elements of other industries to the newly created for the purposes of this study outbound travel sector, and re-mapping the relationships between this group of subsets of industries with the industries that form the

16 15 rest of the economy. Where reliable information was not available to map these relationships precisely, we used the relationships inherent in the broader supply-and-use tables. Having assigned a role for outbound travel within the supply-and-use framework, we had the foundation for establishing the size of the UK s outbound travel industry and for assessing its impact on the UK economy. We have assessed size and contribution through standard metrics relating to GVA (and, from this, the direct contribution to GDP), exchequer contributions and employment. 9 To measure economic impacts, we used input-output modelling to estimate a full set of multipliers capturing direct, indirect and induced effects. This is the most robust method for determining the full extent of the impact of a sector on an economy and facilitates comparisons with other sectors. Having completed the UK-level input-output analysis, we produced equivalent sets of multipliers for each of the UK nations and English Government Office regions. 1.3 Setting the scene: key outbound travel trends Figure 4 below shows the total number of visits abroad by UK residents (blue line, left-hand axis) reaching a peak of almost 70 million in 2006, but falling drastically to 59 million in 2009 and to 55 million in Negligible growth in 2011 and the lack of any sign of the market returning to pre-recession levels any time soon are consistent with current economic circumstances, particularly the squeeze on households due to high inflation relative to income growth. Also illustrated is the trend in total expenditure by UK residents abroad (red line, right-hand axis), rising to a peak of nearly 37 billion in 2008, dropping dramatically in 2009 (by 14 per cent) and bottoming out, it would seem, at around 31 billion in the period GVA or gross value added is a measure of the net value of goods and services which, in the national accounts, is the value of industrial output less intermediate consumption. That is, the value of what is produced less the value of the intermediate goods and services used as inputs to produce it. GVA is also commonly known as income from production and is distributed in three directions to employees, to shareholders and to government. GVA is linked as a measurement to GDP both being a measure of economic output. That relationship is (GVA + Taxes on products - Subsidies on products = GDP). Because taxes and subsidies on individual product categories are only available at the whole economy level, GVA tends to be used for measuring things like gross regional domestic product and other measures of economic output of entities that are smaller than the whole economy. Note that outbound travel s GVA of 21.4 billion constitutes a 1.7 per cent share of UK GVA. This difference, in terms of percentage shares of the respective UK totals is a function of high taxes on air travel through the Air Passenger Duty.

17 16 Figure 4: 10-year trend in number of visits abroad by UK residents and their expenditure abroad Number of visits (millions) Expenditure ( billions) Visits abroad by UK residents (LHS) Expenditure while abroad (current prices) (RHS) Source: ONS We use these, and the trends illustrated in Figure 5 below, to drive our estimates of the size of UK outbound travel presented later in this section. Figure 5 shows the importance of the holiday market in outbound travel which, including visiting friends or relatives (VFR) accounted for over 88 per cent of UK residents visits abroad in Visits for business purposes accounted for less than 10 per cent. Holiday visits abroad fell by per cent in the period Business travel declined by 27 per cent, while VFR appears to have been the least affected by the economic downturn, declining by only 7 per cent in the same period. Figure 5: 10-year trend in the type of visits abroad by UK residents Number of visits (millions) Holiday Business Miscellaneous Holiday (of which inclusive tour) Visiting friends or relatives Source: ONS Figure 6 presents an estimate of how UK residents visits abroad break down by Government Office Region, according to the shares of the airports in those regions in terms

18 17 of the total overseas passenger market. The figure suggests that the vast majority of visits abroad originated from airports in London, the East and South East of England, the North West and Scotland. The estimates in Figure 6 are important, amongst other things, to the analysis in section 5, where we present our estimates of the size and economic impact of outbound travel in each of the UK nations and English regions. Figure 6: Estimated regional breakdown of visits abroad by UK residents based on location of origination airport Number of visits (millions) Source: CAA, Cebr analysis 1.4 Structure of this report This report is structured as follows: Section 2 outlines the methodology used to define UK outbound travel and to establish its size, contribution and impact on the economy. Section 3 presents our findings from the UK-level analysis of outbound travel. Section 4 establishes the methodology used to analyse outbound travel at the UK national and English regional level, a summary of regional-level economic impact estimates. Section 5 examines trends in the outbound travel industry s aggregate contribution to the English regional and UK national economies.

19 18 2 Methodology and assumptions used to define and size UK outbound travel This section of the report sets out the methodology used to determine the structure of UK outbound travel, the size of the sector and its share of the total UK economy. 2.1 Defining and sizing UK outbound travel using the Tourism Satellite Accounts We mentioned in section 1 above that, in formulating a definition or scope for the study, we used as our guide the structure of the economy on which the UK Office for National Statistics (ONS) bases its system of national accounts. Economic activities are broken down according to Standard Industrial Classifications (SIC), the most recent being SIC This approach facilitates estimation of the size and economic impact of UK outbound travel within the framework of the ONS supply-and-use tables, the most detailed official record of how sectors of the economy interact with other sectors, with consumers and with international markets in producing the nation s GDP and national income. Another advantage is that ONS produces tourism satellite accounts (TSAs), which are structured in a similar, but somewhat less detailed, manner as the supply-and-use tables for the whole economy. The aim of the TSAs is to provide a better understanding of the size and importance of the tourism sector (as a whole, including inbound and domestic as well as outbound). They are, however, only produced intermittently, with the last edition relating to Nonetheless, we adopted the 2008 TSAs as our starting point in isolating the outbound travel sector while, at the same time, not confining ourselves to their scope. This is because there are economic activities, products and services, and cross-sectoral relationships that are, or serve, the outbound travel industry, but that are not reflected in the TSAs. Table 2 of the TSAs provides data on expenditure within the UK by UK residents on each of domestic and outbound trips. Figure 7 below provides the extract relating to outbound trips. It shows a total of 26.9 billion spent by UK residents within the UK as part of their trip abroad in The implication is that, by ONS interpretation, the products and services purchased by outbound tourists come from 3 of the broad SIC product or service groupings 10, namely: Accommodation and food services: accommodation and food services that are provided to outbound tourists on their way out of the country. 10 The SIC system is used to classify product and service categories and producing industries using the same coding system. However, not all of a product or service category is necessarily produced by the corresponding industry and not necessarily all of an industry will be dedicated to the production of the corresponding product or service category. (Note we use product category and product or service category interchangeably throughout the report.)

20 19 Transportation and storage: those parts of the transportation sector that serve outbound travel, including by air, water, land and rail. Administrative and support services: the parts of this sector relating to the activities of travel agents and tour operators as they relate to outbound travel ( travel agencies and other reservation services in Figure 7 above). The table in Figure 7 also shows significant expenditures by outbound tourists on other consumption products, but because this is not recognised as an outbound travel industry on the production side, we refrain from categorising it under the SIC structure for the moment. (This is picked up again later in the report.) Figure 7: Adapted table 2 of the 2008 tourism satellite account for outbound travel, millions Internal tourism consumption by products 2008 ( millions) Source: ONS Tourism Satellite Accounts 2008, Cebr analysis Domestic tourism expenditure on Outbound trips Share of aggregate tourism expenditure Products Tourists Excursionists (overnight visitors) (same-day visitors) TOTAL Accommodation services for visitors % Food and beverage serving services % Railway passenger transport services % Road passenger transport services % Water passenger transport services % Air passenger transport services 15, ,746 97% Transport equipment rental services Travel agencies & other reservation services 1,760-1,760 63% Cultural services Sport and recreation services Exhibitions & Conferences etc Other consumption products 6, ,281 13% TOTAL 26, ,881 24% The shares in the last column on the right-hand side is outbound travel s share of all tourism expenditure in the UK, that is, expenditure by non-uk residents on trips to the UK and by UK residents on domestic trips and trips abroad. However, as outlined previously, the TSAs fail to capture the full extent of the outbound travel sector and, therefore, we sought to go beyond them to include important elements of other industries as part of the outbound travel sector. 2.2 Going beyond the Tourism Satellite Accounts As outlined in subsection 1.2 above, we were also eager to capture the following within our definition of UK outbound travel and within the scope of the study: Information and communications: those elements of the publishing industry that produce brochures, guide books and internet-based information on outbound tourist destinations.

21 20 Professional, scientific and technical activities: those elements of the advertising industry dedicated to marketing outbound tourist destinations within the UK, as well as private consultancy services that generate revenues from outbound transport and tourism. Financial and insurance services: travel insurance for outbound tourists and activities related to financial protection for outbound travellers through the bonding system. Arts, entertainment & recreation: the numerous fairs and trade shows up and down the UK on outbound holiday destinations. Public administration & defence services: those elements of the public sector geared towards serving outbound travel, such as passport services, border control and certain functions of the Civil Aviation Authority and Department for Transport. While some of these activities are geared towards the provision of goods and services directly to outbound tourists, others are incorporated through their role in the supply chain of the outbound travel sector. We also noted in the previous subsection that the TSAs fail to include, as producers of outbound travel goods and services, the providers of other consumption products. We sought to capture these by incorporating elements of the manufacturing and retail industries under the SIC classification system, that is, the parts of these sectors related to spend by outbound tourists on items they purchase for their holiday. 11 The manner of incorporation of the activities above that are inadequately accounted for in the TSAs are described in the next subsection. 2.3 Incorporating UK outbound travel in the supply-and-use framework To establish the true size and economic impact of the industry, it is necessary to analyse UK outbound travel within the broader supply-and-use framework. As outlined in section 1.2 above, ONS supply-and-use tables provide the data required to establish the relationships between the supply of and demand for goods and services, on the one hand, and, on the other, the producing industries, including how they interact with other industries, with consumers and with international markets in producing the nation s GDP. We analysed UK outbound travel by adapting these tables to assign the sector a role within them. As also outlined previously, this involved the reassignment of elements of other sectors to the newly created UK outbound travel sector, and re-mapping the relationships between the group of subsets of industries that constitute the sector with the industries and sectors that make up the rest of the economy. 11 The inclusion of the relevant manufacturing industries on the supply-side is a function of the manner in which the retail industry is treated in the supply-and-use tables. These tables do not attribute any household final consumption to the retail sector. Rather, it is allocated to the manufacturing industries that supply the goods that retailers sell.

22 21 Establishing baseline final demand expenditures The latest ONS supply-and-use data are for the year 2009 while the latest TSAs the starting point for our study relate to Given our desire to use the latest available data for this study, we commenced by producing corresponding estimates of the data presented in Figure 7 for The TSA data contained in Figure 7 above were produced by the ONS on the basis of International Passenger Survey data and a 2005 Morgan Stanley survey of expenditure at airports. 12 The latter was the basis of the TSA estimate of expenditure on other consumption products shown in Figure 7 above. These data were not available in the public domain but we received them on request from the ONS. This data is shown in Table 8 below. 13 Table 8: Breakdown of spend on other consumption products in the 2008 TSAs TSA 'Other consumption products' breakdown Expenditure ( m) car park charges 816 currency exchange duty-free spending clothes & shoes 507 cameras & accessories 364 sunglasses & accessories 301 magazines, books, entertainments 251 sun-tan lotion, toiletries & pharceuticals 232 TOTAL Source: Morgan Stanley through ONS We used this data and Figure 7 to produce the table in Table 9 below, which reflects the TSA data, but with the following adaptations: The expenditures are now categorised according to the SIC product categories to which they were allocated in the supply-and-use tables. We included an amount reflecting Government consumption spending on the services that are geared to the provision of outbound travel, including the passport service, the Borders Agency and the Civil Aviation Authority, taking account of the fact that these also exist for inbound services. 12 Note, however, that the Morgan Stanley data supplied by ONS incorporates uplifts to capture similar spending patterns at ports and other points of overseas departure. 13 We note that the total in this table does not match the other consumption products total in the table in Figure 7. The total in Table 8 reflects the Morgan Stanley data, which did not show the same total as in the TSAs.

23 22 We also included an amount reflecting the export of conference and exhibition services to those marketing outbound tourist destinations in the UK. We included an estimate of retail spend by outbound tourists that takes place closer to home and not at the airport or other point of departure. This was forecast to be 100 per cent of what is spent at points of departure. 14 We made the same assumption for currency exchange services. We included spend on travel insurance, the estimate for which was based on research by the Association of British Insurers. They reported that total travel insurance premiums paid in 2007 were 642 million. Claims in the same year were valued at million. We interpreted the difference between these as a measure of the final demand expenditure on travel insurance for outbound travel purposes. Note that the Morgan Stanley data provided the basis for allocating the other consumption products category of spend (in Figure 7) to the relevant SIC-based product categories in the supply-and-use tables. This is summarised as follows: Duty-free spend was split between the Alcoholic Beverages and Tobacco Products SIC categories according to the relative sizes of the aggregate UK spend in these categories. Clothes and shoes were split between the Wearing Apparel and Leather and Related Products SIC categories, again according to the relative sizes of aggregate UK spend in these categories. Cameras and accessories spend was allocated to the Computer, Electronic and Optical Products SIC category. Sunglasses and accessories spend was allocated to the Wearing Apparel SIC category. Magazines, books and entertainment spend was allocated to the Publishing SIC category. Sun-tan lotion, toiletries and pharmaceuticals spend was allocated to the Other Manufactured Goods SIC category. Currency exchange spend was allocated to the Financial Services SIC category. Car park charges spend was allocated to the Land Transport Services SIC category. The 2009 final demand expenditure estimates in Table 9 are what were then fed into the broader ONS supply-and-use tables, the process of which is explained in what follows. 14 We believe, as does ABTA, that most holiday shopping takes place before arrival at the airport and much closer to home.

24 23 Table 9: UK domestic expenditure on outbound trips 2009, Cebr estimates Supply-and-use/ SIC code (2-4-digit) Product / service category description Expenditure m Alcoholic beverages Tobacco products Wearing apparel 1, Leather and related products Computer, electronic and optical products Other manufactured goods Retail trade services Rail transport services Land transport services (excl. rail) 1, Water transport services Air transport services 14, Accommodation services Food and beverage serving services Publishing services Financial services, except insurance and pension funding 3, & 65.3 Insurance, reinsurance and pension funding services Travel agency, tour operator and other reservation services 1, Public administration and defence services Creative, arts and entertainment services 1,524 TOTAL Source: ONS Tourism Satellite Accounts 2008, ONS Morgan Stanley data, ONS supply-and-use tables, Cebr analysis Embedding UK outbound travel in the supply-and-use framework This involved incorporating the expenditure estimates in Table 9 as final demand in the 2009 supply-and-use tables. This was followed by a process of backward induction through supply and production, using the supply table and the combined use matrix. We did this using the inter-industry and intra-industry relationships suggested by the tables. We made a number of important assumptions for this purpose: That the outbound travel products and services in Table 9 are all produced and supplied by the corresponding SIC industry at the 2-4-digit level. (See footnote 10.) That output of the retail part of the outbound travel sector is derived from distributors trading margins on the relevant manufacturing product and service categories. We assumed that certain of the outbound travel product categories in Table 9 play a role in the supply chain of all other sectors reflecting business-related travel.

25 24 The outbound travel supply chain is assumed to reflect the supply chains of the industries in Table 9 that we have identified as producing outbound travel products and services. The expenditure of the sector on intermediate inputs 15 is the means by which we have captured a number of the specific items identified in section 2.2 above, specifically: the publishing of outbound tourist destination literature for use by travel agents and tour operators; the advertising of outbound tourist destinations and consultancy services related to outbound transport and tourism; bonding activities that exist to provide insurance against the financial failure of travel agents and tour operators; and insurance sold to the providers of the shares of the air, rail, land and sea transport industries serving outbound travel. Likewise, we assumed that the role of outbound travel in the supply chain of other industries reflects the amount of spend on the relevant outbound travel services as a proportion of the industrial output of those industries as a whole, that is, including the outbound travel and non-outbound travel elements. This included the demands of other industries on the outbound travel transport industries, on financial services (currency exchange for travel by company staff), as well as on the services offered by travel agents and tour operators. We also took account of spend by the outbound travel sector on the products and services in the corresponding SIC categories (the aforementioned intraindustry relationships.) 2.4 Determining size, economic contribution and impacts Having assigned a role for outbound travel within the supply-and-use framework, we had the foundation for establishing the size of the UK s outbound travel sector and for assessing its impact on the UK economy. We have assessed size through standard metrics relating to GVA, exchequer contributions and employment. These estimates are outlined in section 3 below. To measure economic impacts, we used standard Leontief input-output modelling to estimate a full set of multipliers capturing direct, indirect and induced effects. This is the most robust method for determining the full extent of the impact of a sector on an economy and facilitates comparisons with other sectors. The results of this analysis at the UK level are also presented in section 3 below. Having completed the UK-level multiplier model, we produced equivalent sets of size and multiplier impacts for each of the UK nations and English Government Office regions. The 15 Intermediate inputs are products or services purchased from other producers in the same or different sectors of the economy. For example, intermediate inputs can include the items that all businesses must consume, such as electricity and banking services, or the more idiosyncratic items such as the components and tools used in certain manufacturing industries.

26 25 results of this analysis and the manner of their estimation are the subject of section 4 and section 5 below.

27 26 3 UK outbound travel: size, economic contribution and impacts This section sets out our findings on the size, economic contribution and economic impact of outbound travel at the aggregate UK level. Section 3.1 assesses the economic contribution of outbound travel to UK GDP and provides a comparative analysis with other sectors of the economy. Section 3.2 presents our findings on employment and section 3.3 our findings on contribution to the UK Exchequer. 3.1 Contribution of outbound travel to UK GDP In broad terms, ABTA and Cebr have discovered, though extensive investigation and economic modelling of the latest official data that the outbound travel industry accounts for approximately 1.6 per cent of UK GDP. This equates with an absolute GVA contribution of 21.4 billion in For illustrative purposes, we compare the contribution of outbound travel to that of some of the larger and smaller sectors of the economy in Table 10 below, as well as with existing estimates for domestic and inbound tourism. While the contribution of the outbound travel sector is small relative to the very significant manufacturing and financial services sectors, a 1.6 per cent contribution to GDP is not insignificant and, indeed, exceeds the contribution of several of the smaller sectors, such as utilities (water & sewerage), agriculture, forestry and fishing and the arts, entertainment and recreation sector. Our estimates also suggest that outbound travel is on a par with the energy sector, exceeding it in GVA terms, yet slightly lagging in terms of contribution to GDP. This is because, while the air transport element of the outbound travel sector pays significant indirect taxes through the Air Passenger Duty, the rail industry receives net subsidies for its services. Indirect taxes on energy are also substantial. Table 10: Outbound travel s GVA contribution relative to some of UK s largest sectors SECTOR Contribution to GDP Total GVA (2009 estimate) Manufacturing 14.81% 125,862 Financial services 9.11% 121,654 Inbound and domestic tourism (Deloitte) 4.00% 52,000 Energy 1.69% 21,146 OUTBOUND TRAVEL 1.62% 21,444 Arts, entertainment and recreation 1.58% 18,282 Utilities (water & sewerage) 1.19% 15,173 Source: ONS Supply-and-Use tables 2009, Cebr analysis

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