Tax

Cutting Air Passenger Duty – a step too far?

As the aviation sector suffered its worst year in history, Government recently set out plans to reform aviation tax with a cut to Air Passenger Duty (APD), delighting airlines and infuriating environmental campaigners. Phil Hall, AAT’s Head of Public Affairs & Public Policy, considers the implications of such a change.

APD is the British government’s main tax on the aviation sector as tickets are VAT free and aviation fuel incurs no duty.

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APD raised £3.6bn in 2019-20 and despite limited efforts to paint the tax as an environmental one, its primary objective until now has always been to ensure that airlines make a fair contribution to public finances.

In a post Brexit, post pandemic UK, the Government has boldly stated its intention to significantly reduce APD on domestic flights whilst increasing the tax on long haul flights. It is currently consulting on the issue.

Broadly speaking such a proposal is welcomed by airlines and condemned by environmental organisations.

But for the average person, the pros and cons may not be so black and white. It is difficult not to be attracted to the idea of cheaper air travel in the UK but at the same time, most people now have a degree of environmental awareness that influences their behaviour.

AAT will shortly respond to the consultation and whilst appreciating the competing priorities Government has to face – improved domestic connectivity, securing the optimum level of tax receipts and meeting environmental goals – is inclined to conclude that these proposals mistakenly emphasise the former over the latter.

Reducing APD on domestic flights contradicts and greatly weakens government policy on seeking to reach “net zero” by 2050, flies in the face of a wealth of national and international evidence about the damaging impact of short haul flights and seriously undermines the UK’s credibility ahead of COP26 in November 2021.

The current HM Treasury consultation document rather misleadingly and very simplistically states, “…long-haul flights are responsible for a greater amount of emissions on a per flight basis, as they cover longer distances.”

However, it is widely accepted that domestic and other short-haul flights are actually the most carbon intensive form of travel and emit more CO2 per person per mile than long haul flights. This is primarily because the act of taking-off and landing uses the most fuel.

HM Treasury should perhaps have consulted with colleagues in BEIS/Defra who calculate that planes on routes of 700 km or less emit 251 grammes per km compared to 195g/km for a long haul flight.

Such evidence suggests an increase in APD on the shortest routes would be more appropriate than a decrease.

It is also worth highlighting that other countries not only recognise this but are taking action to address the problem. Earlier this month France took steps to ban domestic flights on routes that can be travelled in less than two and a half hours by train. This covers over 10% of domestic flights in that country.

One alternative to changing APD would be to tax flights rather than passengers. This would more closely align with the Government’s environmental objectives because doing so would better target the level of emissions by encouraging airlines to fill their planes. The Coalition Government promised to explore such a reform in its first Budget in June 2010 but no further action was ever taken. It may be time for HM Treasury to revisit the idea.

Another alternative would be to replace APD with a frequent flyer levy.

Such a levy has both advantages and disadvantages but allowing passengers at UK airports to have a single tax-free flight every 12 months – with an incrementally increasing levy for every subsequent flight during the same 12 month period – has considerable appeal.

The Committee on Climate Change has already highlighted that most people in the UK (57% don’t fly at all) and of those that do fly, they typically take one or two flights a year. As a result, introducing a single tax free flight each year would be a welcome change for many.

At the other end of the spectrum, 70% of flights are taken by just 15% of the population so it’s difficult to argue against the increased fairness and proportionality of a frequent flyer levy. This is further enhanced  when the average annual income of frequent fliers is factored in (£115,000). As the Committee on Climate Change has correctly observed; The greatest beneficiaries of aviation’s generous tax treatment in the UK are therefore those who could most easily afford to pay more for plane tickets.”

Concerns include those around privacy but these appear misplaced given such a scheme would inevitably comply with GDPR. Likewise, HM Treasury has given difficulties for those with multiple passports exaggerated importance as they amount to a miniscule fraction of flyers (less than 1% of UK nationals hold dual nationality).

In light of the above, Government’s apparently dismissive approach to a frequent flyer levy appears to be unwarranted and AAT will urge HM Treasury to revisit the possibility of such a scheme. 

Click here to read AAT’s full response to the 2021 HM Treasury consultation on Aviation Tax Reform

Phil Hall is AAT's Head of Public Affairs and Public Policy.

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