UK decision to extend passenger duty distance bands and scrap plane tax finds little support from industry on GreenAir Online

Mon 1 Dec 2008 – Last week’s announcement by the UK Government that it would scrap proposals to introduce a per-plane tax and instead retain, and extend, Air Passenger Duty (APD) has been met with at best a mixed reaction from both industry representatives and environmental groups. Airlines say the increase in duty is little more than a tax grab under the guise of environmental protection whereas environmentalists say an opportunity to extend the tax to freight and transfer passengers has been missed.

The UK Chancellor’s justification for not replacing APD with a per-plane tax – that would have included for the first time air freight, private and business aircraft over a certain weight, and possibly transfer passengers – on the grounds that it “could harm the aviation industry at a time when it is facing huge problems”, failed to gain much support from those he was purporting to help.

The airline and airport industries generally (but not all) welcomed the decision to retain APD but condemned the extension of the present two distance-based bands to four and the increases in duty planned for November 2009 and again in November 2010. The biggest rises in the duty will be faced by long-haul travellers, which will ensure, said the Chancellor, Alistair Darling, “those that travel further and have a larger environmental impact meet that cost.” Those who fly business or first class continue to pay double the duty incurred by economy class passengers.

The Aviation Environment Federation (AEF) said it was “disappointed” the Government had backed down on the per-plane tax but welcomed the increases in APD “and the better correlation between emissions and taxation that the new banding will offer”.

It added: “Given the growing environmental impact from UK aviation and the fact that high earners fly far more than those on low incomes, we believe there is a very strong justification for tax increases in this sector. Aviation fuel remains tax-free and there is no VAT on air tickets.”

The AEF said that inclusion of aviation into the EU Emissions Trading Scheme (EU ETS) from 2012 will not on its own bring aviation’s greenhouse gas emissions down to a level compatible with UK targets to reduce emissions from all sectors by 80% by 2050. “There are a number of areas in which the scheme needs to be tightened, while at the same time other measures will be necessary for the effective management of aviation’s environmental impact. The changes announced [to APD] are, we believe, consistent with this aim.”

Jeff Gazzard, a board member of AEF, believed that it would have been relatively easy for the Government to have come up with a formula for including a duty on air freight, business aircraft and transfer passengers. “The overall tax take on the industry is still a lot less than it should be and has not kept pace with inflation,” he said. He described some of the airline industry reaction to the increases in APD, notably from IATA, as “vacuous posturing”.

Greenpeace’s Executive Director, John Sauven, said: “Plans to tax flights instead of people would have encouraged the industry to fill their planes instead of flying half-empty jet liners around the world.”

The International Air Transport Association (IATA) called the increase in APD and its reform into four bands “an enormous mistake”. Although the Chancellor had been wise to abandon the per-plane tax plan, it was the right diagnosis but the wrong prescription, claimed Giovanni Bisignani, IATA’s Director General and CEO.

“This another cash grab by the Treasury, thinly disguised as an environmental measure. The UK Government already admits that the current £2 billion ($3bn) take from APD more than covers the cost of aviation’s climate change impact,” he said. “Airlines take their environmental responsibility seriously. In this year alone, IATA-led efficiency measures have saved over 14 million tonnes of CO2. How much CO2 will the increased APD save? The blunt instrument of taxation does nothing to improve environmental performance.

“I ask a question that I have asked many times before. How many trees will the Treasury plant with the cash? And where is the commitment to end APD when aviation joins the EU ETS in 2012? We cannot accept tax upon tax in place of a sound environmental policy.”

The Board of Airline Representatives in the UK (BAR UK) said that the increases in APD, particularly on long-haul flights, would have an adverse effect on the industry and that no other country had applied this level of taxation on aviation.

“The UK Department for Transport’s own statistics demonstrate that aviation already exceeds its environmental costs by over £100 million ($150m) per annum,” BAR UK said in a statement. “APD contributes over £2 billion ($3bn) per annum to the Treasury’s revenues, none of which is set aside for any environmental benefit. The proposed increases to APD are yet another money grab from the aviation industry.”

The Air Transport Association of America (ATA), which represents the leading US airlines, expressed its “stiff opposition” to the increases in APD.

“This extraterritorial decision by the UK Government is counterproductive to the airlines’ environmental progress and is in conflict with established law,” it claimed. “The revised duty is in violation of various provisions under the Convention on International Civil Aviation – commonly known as the Chicago Convention – and the relevant bilateral air services agreements that regulate extraterritorial actions and taxes and charges.

“Among other things, the duty improperly asserts regulatory jurisdiction over flights far outside UK airspace by taxing flights according to various distance bands arbitrarily set up by the UK Government. And a lesser tax is imposed on those flights within the UK and the European Union, even though a flight from the United States is not in UK airspace for any longer (and often less) than such flights.”

ATA President and CEO James C. May said: “The decision to revise and further increase the UK duty is a revenue raiser for the Government under the guise of environmental protection. The funds collected do not go to environmental projects and yet the taxes take money from airlines that they could otherwise invest in more fuel-efficient and GHG-efficient technologies. This is an illegal action, which we expect to be settled in the courts.”

Andrew Herdman, Director General of the Association of Asia Pacific Airlines (AAPA) agreed the use of geographic distance bands was discriminatory, and would, he believed, have an adverse impact on travel and tourism links between the UK and the Asia Pacific region. “AAPA is firmly against the unilateral imposition of punitive ‘green taxes’ that in reality do nothing for the environment,” he added.

The low-cost, short-haul carriers, which had the most to gain from a switch from APD to a per-plane tax, were predictably scathing about the U-turn. The European Low Fares Airline Association (ELFAA) “deplored” the decision, saying that as a result of the new reform to APD, UK-originating passengers would be paying more, while the Government had turned a blind eye to the environmental impact of transfer passengers and air freight.

“To justify this about-turn, the UK Government seeks to invoke the environmental gain from the inclusion of aviation in the EU ETS, which will take account of aviation’s impact on the environment,” it commented. “The logical extension of the Government’s own argument will be the withdrawal of APD once aviation joins the scheme in 2012. ELFAA asks the UK Government to commit to this action, having failed to deliver on its own reform.”

Europe’s biggest low-cost airline, Ryanair, said the increase in APD would have a devastating effect on UK tourism, particularly on regional airports where there was a greater price sensitivity on passenger fares. Ryanair said the tax failed to reward airlines such as itself, which invested in new, cleaner and more environmentally friendly aircraft.

Rival easyJet’s CEO, Andy Harrison, said the Government had succeeded in “bodging-up the reform of an already bodged tax” and had made a bad situation worse.

“The Chancellor said that he wouldn’t allow the economic crisis to push aside the importance of protecting the environment, but his green credentials have been brushed aside in a dash for cash and the emissions from cargo planes, private jets and transfer passengers continue to be tax free,” he commented. “So, Roman Abramovich, FedEx and Heathrow’s transfer passengers will continue to be exempt, but hard-working families going on their summer holiday on environmentally-efficient, low-fare airlines will now pay even more.”

Ed Anderson, Chairman of the Airport Operators Association (AOA), which represents 72 British airports, said: “Aviation has won the battle, but continues to fight the war. While we believe that the Government has done the right thing in not introducing Aviation Duty, we remain concerned that the industry is taxed more than its fair share at this critical time. AOA has been arguing against Aviation Duty for over a year, and it is heartening to see that Government has listened to our warnings.

“Aviation is a considerable employer in the UK and we will continue to fight for levels of tax that keep our industry internationally competitive.”

The Association of British Travel Agents (ABTA) said it was disappointed the Government had chosen to continue with APD, “which is acknowledged not to be environmentally efficient, and actually penalizes those airlines which operate full aircraft.”

ABTA’s Head of Development, Andy Cooper, commented: “The money being raised from APD will not be hypothecated to go to environmental causes, but will just end up in general government coffers, despite being grouped under the heading on how the Government will deliver on environmental goals.”

Major holiday group TUI said it was “surprised and utterly disappointed” with the Government’s failure to move to a per-plane tax.

“APD was introduced as an environmental tax, yet we have seen the Government take no obvious steps to pledge the monies collected to invest in environmental solutions or ameliorate the impact from the emissions of UK aircraft,” added Tim Williamson, the group’s Customer Director. “Nor does it offer any incentive for airlines to operate in an environmentally responsible manner, which should surely be the criteria for anything that claims to be an environmental tax.

The Pacific Asia Travel Association (PATA) said the decision to raise departure taxes from British airports was “short-sighted and self-defeating”.

“At a time when the travel and tourism industry is facing an unprecedented threat to long term financial stability, we see a government in Europe imposing tax increases which pose a real threat to jobs and businesses not only in the UK but in destinations across the Asia Pacific region,” said Brian Deeson, interim President and CEO of PATA.

“PATA is an organization committed totally to sustainable development in travel and tourism. This move by the UK Government is simply about increasing revenues for the state under the very dubious cover of consolidating its green credentials.

“Ironically, this is a move by the British Government that could easily backfire. Travellers seeking value on long-haul routes may now choose an airport in mainland Europe as their principal point of entry and exit. This will increase short-haul traffic to and from the UK and increase carbon emissions. Long-haul flights, by comparison, are more environmentally-friendly on a mile-by-mile basis.”

The UK’s biggest union, Unite, welcomed the plans to retain APD, saying it was a “shot in the arm” for the UK civil aviation industry and showed the Government was acting on behalf of its 75,000 aviation workers and taking their jobs seriously. “By acting to safeguard this strategically important industry and revising plans to levy a tax on passengers and freight, neither will now be tempted overseas in search of cheaper airports,” said the union’s National Officer for Civil Aviation, Steve Turner.