UK Government decides against change to a plane tax and instead opts for increases on passenger duty
The UK Chancellor, Alister Darling, announces APD reforms
Fri 28 Nov 2008 – The UK Government has decided not to switch from a per airline passenger duty to a tax per plane on the grounds that to do so could harm the aviation industry. Instead, the present two-band Air Passenger Duty (APD) will be extended to four bands, with increases in duty to take place in November 2009 and again the following year. The new reform is expected to lead to savings of 0.6 MtCO2 in 2011-12.
The UK Chancellor, Alistair Darling, told Parliament that the move to a tax based on a departing aircraft’s Maximum Take-Off Weight and flight distance “could harm the aviation industry at a time when it is facing huge problems.” Although he declined to outline the tax take from the APD changes, reports suggest that it could be £270 million ($415m) less over three years than was originally estimated from a change to a per plane tax, which was expected to raise an additional £520 million ($800m) annually. By retaining APD, potential tax revenue from freight carriers and general aviation aircraft will now be lost.
Darling said the change to a four-band system would ensure that those who travel further and have a larger environmental impact would meet that cost. “I believe this will be effective in reducing emissions from aviation.”
In a chapter titled ‘Delivering on Environmental Goals’, the Government’s 2008 Pre-Budget Report says: “Reforming APD avoids the disruption and costs associated with the transition to a new tax, while continuing to send environmental signals to passengers and the industry alike, and ensuring that the sector contributes fairly to public services.
“It takes account of the need in the present economic circumstances to mitigate the potential impact on the air-freight sector, the impact on employment in this sector, and the wider business community which relies on air-freight services; as well as mitigating the potential regional employment and connectivity impacts.”
The Government foresees short-term economic pressures resulting in a consequential reduction in demand for air travel and has revised its estimates of revenues from the aviation industry. The report estimates the CO2 impact of the APD reform will be a reduction of 0.6 MtCO2 in 2011-12, to which it has applied a radiative forcing factor of 1.9 to claim overall savings of 1.2 MtCO2. “Coupled with savings from the doubling of APD rates in 2007, this will achieve a combined reduction of 2.4 MtCO2 in 2011-12,” it forecasts.
Passengers currently pay £10 ($15) in economy or £20 in business or first class on flights within Europe, rising to £40 or £80 respectively on long-haul flights. From 1 November 2009, charges will now start at £11 and £22 respectively on flights up to 2,000 miles, increasing to £55 and £110 for flights over 6,000 miles, the top band D. On 1 November 2010, the charges will rise again, most steeply in band D. A business or first class passenger travelling more than 6,000 miles, say to Singapore, will then be paying £170 ($260) in duty.
However, the revised system throws up an anomaly. The four 2,000 mile bands will be determined not by the actual distance of the route but by the distance between London and the capital city of the country travelled to. So flights to the US are based on the distance from London to Washington, DC, effectively placing all US journeys in band B although the distance to Los Angeles is around 5,400 miles. According to the Treasury, this has been done for administrative simplicity.
In his pre-budget statement, Alister Darling told MPs that the inclusion of aviation into the EU Emissions Trading Scheme from 2012 was “a major step” towards achieving the Government’s environmental objective of reducing the impact of aviation on climate change and had enabled him “to look again” at the APD reforms. He gave no indication on what would happen to APD from 2012 as aviation entered the scheme.