New analysis by the Green Alliance makes the case for raising more tax revenue from aviation

15.6.2010 (Green Alliance press release)

Green Alliance, the award winning think tank, today publishes research which
identifies the opportunity to use green taxation to contribute to the UK Government’s
fiscal and economic strategy.   Making aviation pay its way 
(3 pages)

The analysis forecasts revenues of £2.5 billion per year which could be raised
from aviation, currently undertaxed compared to road fuel. This would allow the
government to reduce income taxation and help the UK economic recovery.

The proposition builds on last year’s report by the UK Green Fiscal Commission published in October 2009, which concluded that green fiscal reform is crucial
for UK competitiveness and fiscal stability after the recession.

Commission members included Chris Huhne MP, the (Liberal Democrat) Secretary
of State for

energy and Greg Barker MP, the (Conservative) Minister of State for climate change.

The research identifies an immediate opportunity for the Government to fulfil
its coalition agreement pledge to raise green taxation revenues, which fell under
the last government. It is based on detailed financial analysis by the Policy Studies Institute who have produced a technical note alongside the Green Alliance briefing. (link

The UK aviation sector enjoys historic tax exemptions worth £10 billion a year,
because it does not pay fuel duty and VAT is not paid on airline tickets. As a
result travellers pay more tax to drive than to fly, despite its greater carbon

In Making aviation pay its way, Green Alliance argue that Air Passenger Duty should be replaced by a Per Plane
Duty, which would incentivise airlines to increase plane occupancy and reduce
the overall number of flights.

Commenting on the publication, Matthew Spencer, Director of Green Alliance said:

"One of the reasons that budget flights seem cheap compared to other forms of
transport is because aviation pays less tax than it should.    If you fly from
London to Newquay you’d pay £25 of tax, compared to £11 in tax you’d pay if you’d
drive, despite the much greater environmental damage."   [??]

He added.     "There’s never been a better time to make aviation taxation fairer,
by correcting the imbalance with road fuel taxation.   Government could raise enough
money from aviation to fund a half per cent drop in national insurance contributions
and make it cheaper for business to employ new staff.     Fairer aviation tax can
therefore contribute to the UK’s recovery, as well as promoting greener alternatives
such as train travel and video conferencing."


For more information contact:

For Matthew Spencer, Director,     Francesca Polini, media adviser,             07725 558754


Green Alliance is an independent charity with a mission to ensure that environmental
solutions are a priority for British politics.  It was named the think tank of
the year 2009 at the Public Affairs Annual Awards.

The Policy Study Institute paper, A new basis for aviation taxation – a briefing on the introduction of an aviation
tax based on a per plane duty’
, is also published today.     (16 pages)
The Green Alliance report (3 pages)    Making aviation pay its way
see also
Green Alliance calls for end to aviation tax breaks
21.6.2010   (Green Alliance website.   Guest writer, John Stewart)

The Government could raise an additional £2.5 billion a year by 2013 if the tax
breaks enjoyed by aviation were tackled.   An
analysis published last week by the Green Alliance and the Policy Studies Institute argues
there would be economic, environmental and equity benefits if the Government got
rid of these tax breaks.   According to Treasury estimates, if aviation fuel was taxed at the same rate
as road fuel, the Exchequer would raise £6.5 billion a year.
An additional £3.5 billion could be raised if the VAT exemption on air tickets
and the purchase of aircraft equipment was abolished.

It would be difficult for the Government to take unilateral action to abolish
many of these exemptions directly, particularly on tax-free fuel, because of international
agreements. But it could use its proposed new Plane Tax as an indirect way of raising the money.   The Green Alliance argues that the
money raised could be used to reduce income tax and support economic growth.  
It says that £2.5 billion is the equivalent to the cost of reducing the employees’
National Insurance contributions by over 0.5%.

A fairer level of taxation would almost certainly lead to higher air fares.  
This would, though, merely redress the balance of recent years where, because
of the tax-breaks, demand for air travel has been artificially stimulated.
Higher fares would reduce the growth in air travel.   That would go some way
towards the UK having any chance of meeting its CO2 emissions target.   The soaraway
growth in air travel threatened to drive a jumbo jet through these targets.   It
will also ease the burden on other sectors of the economy which have been faced
with cutting their emissions drastically in order to compensate for the rising
emissions from the aviation sector.

But wouldn’t higher fares hit poorest people hardest?   The evidence suggests

 The Policy Studies Institute found that:

• the extra tax increase for short-haul flights would be around £25 per passenger.

• For longer haul flights it would be greater as the tax would increase  with
the distance flown.

• An economy fare from London to New York would be £50- £60 more expensive; business
and first-class tickets would go up by £200 – £300.

And the equity benefits could be significant.   What worries the really poorest
people in the UK when they wake up each morning is not whether they can afford
a weekend in Paris or Rome, but the cost of clothes for their children, the rising
price of bus fares and the prospect of increased heating bills.   Their quality
of life doesn’t revolve around a flight to the Agean each year but effective sound
insulation in their homes, somewhere safe for their children to play and easy
access for their disabled parents to local facilities.   Taxation on aviation which helped pay for some of these things would be progressive.  
The current tax-breaks are regressive. They are of most benefit to the people
who fly the most:   the top 10% of income earners.

The abolition of aviation’s tax-breaks would also send an important signal about
the Government’s willingness to move in the direction of green taxes.   While in opposition, the Conservatives talked about the need for ‘eco-taxes’:
where the tax burden on polluters is increased but it is relaxed in other areas
of the economy.   The Plane Tax gives the Government an early opportunity to move
in this direction.

The new research from the Green Alliance and the Policy Studies institute can
also provide useful ammunition for politicians on the left as they reassess their
thinking on aviation.   Towards the end of the Brown Government it was becoming
painfully clear that such a reassessment was long overdue.   Labour had become
the party defending the privileged position of one of the most problematic industries
on the planet.   The contenders for the Labour leadership should use this new research to help
formulate a new policy on aviation that is both more equitable and sustainable
and is much more relevant to the economic needs of the 21st Century.