Some 250 chief executives have written to the Chancellor this weekend, accusing the Treasury of ignoring evidence that Air Passenger Duty (APD) is harming the economy.
The UK has one of the highest aviation tax regimes in the world. In a recent study by the World Economic Forum, the UK was ranked 138th out of 139 countries according to the competitiveness of its air ticket taxes and airport charges – ahead only of Chad in Africa.
APD, which applies to all passengers flying from a UK airport, will be raised again in April 2014.
Rates have soared since 1994, when APD was introduced. Then, passengers paid £5 per person for short-haul destinations and £10 to travel further afield, but now as much as £188 can be added to a long-haul ticket.
“Year-on-year APD rises are making the UK economy increasingly uncompetitive,” the chief executives, including British Airways head Keith Williams and Heathrow Airport boss, Colin Matthews, write.
“As UK businesses, we are bitterly disappointed with the Government’s decision to keep increasing a tax which acts as a barrier for business in attracting inward investment and creating new jobs.”
The business chiefs, who range from directors of large companies such as Emirates and Lufthansa, to small firms, point to research published by PwC earlier this year which claimed that scrapping APD would deliver a 0.45pc boost to gross domestic product within 12 months and create 60,000 jobs by 2020.
The study, which used economic modelling used by government departments and organisations such as the International Monetary Fund, estimated the UK would be £16bn better off by 2015 were APD to be abolished.
The research was dismissed by the Treasury but the 250 chief executives, who also include Craig Kreeger, head of Virgin Atlantic, are pressing for the Government to carry out and publish its own study into how APD affects the economy. A similar call was made earlier this year by the Commons Treasury Select Committee.
“In the current economic climate it will be the private sector that drives growth, but taxes like APD are hindering us from competing internationally and slowing us down in the global race,” write the chief executives, who are members of the campaign group A Fair Tax on Flying.
An HM Treasury spokesman said: “The Government has frozen APD in real terms since 2010, and in the last year, APD has not changed at all for the majority of flights. Passenger numbers are going up, and airlines do not have to pass on the cost of APD to passengers.
“However, it is important that the aviation sector plays a part in helping to bring down the deficit.”
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The Battle over Air Passenger Duty
1st December 2013
Blog by John Stewart
Yesterday was the 20th anniversary of the introduction of Air Passenger Duty (APD). It has proved hugely controversial. Environmentalists and most residents groups’ believe it is not high enough. Aviation interests argue it is crippling the industry.
Even today the Sunday Telegraph is reporting that some 250 chief executives have written to the Chancellor, in advance of his Autumn Statement this week, claiming APD is harming the economy.
In a sense, both sides are right. Air Passenger Duty has the potential to transform demand for air travel. And both sides know it. If it is removed, more people will fly. If it is increased, demand over time is likely to fall. Higher rates of APD would hit leisure travel hardest as it is much more price-sensitive than business travel. Less demand for air travel would, in turn, reduce the demand for new runways.
Howard Davies, the chairman of the Airports Commission, has argued that it is not his job to advise on taxation rates; that he has to work within the current regime. In my view, he is correct. It is the job of governments to decide the extent they want to use fiscal measures to manage demand.
When Kenneth Clarke, as Chancellor of the Exchequer, introduced APD 20 years ago in his budget of November 1993, it wasn’t to manage demand but to ensure aviation paid its fair share of taxation: “First, air travel is under-taxed compared to other sectors of the economy. It benefits not only from a zero rate of VAT; in addition, the fuel used in international air travel, and nearly all domestic flights, is entirely free of tax. A number of countries have already addressed this anomaly”.
By 2007 the Government was framing APD as a response to rising aircraft emissions. But, in recent years, government has seen it as a substitute for tax on fuel and VAT. Ministers regard it as easier to impose APD than enter into prolonged international negotiations to get agreement for aviation fuel to be taxed or for a VAT-type tax to be imposed on international flights.
At present there is a huge discrepancy between what motorists are taxed and the tax paid by the aviation industry. Revenue from car travel (tax on fuel and VAT) bring the Treasury about £12 billion a year. APD raises around £2.8 billion. It would need to be quadrupled match the income from car travel. **
Of course, the aviation industry argues that, unlike roads, it doesn’t depend (certainly in the UK) on state money to build and maintain its infrastructure. It also points out there are tax-breaks given to rail and bus travel. However true those arguments are, I’m not sure they fully answer Kenneth Clarke’s original point that aviation fails to contribute its fair share of general taxation.
The industry also argues that APD does not exist in other countries. That is true. However, there are a variety of ticket-type taxes or other charges in many European countries. For example in Austria, the ticket fee depends on the distance, 7€ is for the short distances, 15€ for middle and 35€ for long distance. None of them – yet – bring in as much money as APD.
But politicians across Europe are beginning to understand APD-type taxes have two potential benefits: they rake in money during these recessionary times; and they can act as an effective tool to regulate demand if they want to do so. That’s why they fill environmentalists and residents with hope and strike fear into the heart of the aviation industry.
I suspect the battle will go on for at least another 20 years.
** [The RAC says in 2012, the overall motor vehicle traffic volume (not only cars but including lorries etc) in Great Britain was 302.6 billion vehicle miles, which is 492 million kilometres. This is similar to traffic volumes in 2011 (303.8 billion vehicle miles) and 2010 (303.2 billion vehicle miles).The CAA said in 2011 the number of seat kilometres flown by UK airlines was around 306 billion kilometres (not miles) but that excludes the seat kilometres of foreign airlines using UK airports. Therefore, including an assumption on the foreign airlines that also use UK airports, the number of kilometres travelled by cars and air passengers to/from the UK are broadly comparable. AW comment].
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Earlier:
PwC report on APD met by dismissive comments from Treasury – Chancellor has no intention of lowering APD
5.2.2013
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Some other recent news about Air Passenger Duty:
Treasury Minister confirms APD is necessary and government has no plans to reduce it
27.10.2013 .On 23rd October there was an “Opposition day debate” in the Commons, on Air Passenger Duty -especially in relation to Northern Ireland. There were attempts by some MPs with no interest in environmental concerns, to make out that APD is a “green tax”, (and so, along with other “green taxes” should be cut, in the misjudged belief that would benefit the UK economy. The new Economic Secretary to the Treasury, Nicky Morgan, replied for the government, that “we must continue to work hard to reduce the deficit, so if we were to abolish APD, an alternative source for the revenue would need to be found. We never seem to hear any suggestions,” and “….the £3 billion that is raised by APD is a significant contribution to the Exchequer when we are tackling the deficit.” And “There is also no duty charged on the fuel used in international, and virtually all domestic, flights. …..despite the fiscal challenges, the Government have ensured that APD rates have been frozen in real terms since 2010, rising by just £1 for the vast majority of passengers since then. The Government therefore reject the suggestion that we have pushed taxes on aviation too high.”
https://www.airportwatch.org.uk/?p=18093
Anti-APD campaign wastes no time in lobbying new shadow minister, Lilian Greenwood
September 10, 2013 . After the resignation of Jim FitzPatrick as a Labour opposition transport spokesman on 29th August over Syria, his shadow aviation responsibilities have been taken over by Lilian Greenwood (MP for Nottingham South). The aviation industry has lost no time in lobbying her on Air Passenger Duty. British Air Transport Association (BATA) say her new role “offers an ideal opportunity for the opposition to put pressure on the government between now and the next election to review the impact of APD on the UK economy.” While APD does no harm the UK economy, it has a very slight impact on demand for air tickets (it is only £13 for a return flight to anywhere in Europe), so the aviation industry is deeply opposed. All the lobbying ignores the fact that the Treasury charges APD because air travel pays no VAT and aviation does not pay fuel duty. People on internal return flights within the UK pay £26 in APD as each part of the trip is charged. Scotland has long lobbied to get APD devolved to the Scottish Government, with businesses campaigning to get APD removed.
https://www.airportwatch.org.uk/?p=17294
Report shows EU governments miss out on up to €39bn a year due to aviation’s tax breaks (no VAT or fuel duty)
July 30, 2013 . A report has been produced, by consultants CE Delft, for the sustainable transport group, Transport & Environment (T&E). It shows that debt-ridden EU countries miss out on up to €39bn every year from airlines not paying taxes. CE Delft found that this revenue shortfall is due to out-dated EU laws exempting international flights from fuel taxes, and from VAT, which is levied on almost all consumer goods. While every European consumer, small business and haulier has to pay on average a tax of €0.48 / litre of fuel for petrol or diesel, big commercial airlines – both those based in the EU and overseas – don’t pay any tax on their fuel. This revenue shortfall totals up to €32bn a year. In addition to this EU governments miss out on €7.1bn every year on VAT which is exempt on international flight tickets. T&E’s aviation policy officer Aoife O’Leary said: “International airlines are like flying tax havens inexplicably exempted from paying the basic EU taxes every EU citizen and company is obliged to pay.” However the airline industry says that without such tax holidays it would be hard pressed to turn a profit. (So much fuel used. So much CO2 generated. So little profit.) The EU consultation on state aid to airports & airlines closes 25th September.
https://www.airportwatch.org.uk/?p=3975
Latest ‘Fair Tax’ campaign focuses on business
20 June 2013 .A Fair Tax on Flying has launched a new initiative [yet again!] to highlight opposition from businesses to Air Passenger Duty (APD). The latest initiative encourages UK and international companies to add their support to a petition hosted on the campaign website – www.afairtaxonflying.org/business – which says that ‘As APD continues to increase each year, our competitive position gets worse, not better. In the current economic climate, the Government should be making it easier for companies like ours to travel overseas to win new business.’ Businesses are also being asked to add their names to a letter to their local MP and the Chancellor, which campaign organisers plan to send later this summer.
For full details of the latest initiative click here. http://www.e-tid.com/wp-content/uploads/2013/06/FairPRESS-RELEASE.pdf And it continues. To see full story seehttp://www.e-tid.com/latest-fair-tax-campaign-focuses-on-business/80973/
No change to the rate of APD in the Budget – it will continue to rise at the rate of RPI
Budget coming up this week – so it’s time for the habitual bash at APD by the airlines…
March 17, 2013 With the budget coming up on the 20th March, the airlines do their usual predictable attack on Air Passenger Duty, in the vain hope that the Chancellor will be persuaded to let flying be a bit cheaper, and agree to the Treasury forgoing an important source of revenue for the UK economy. The last attempt the airlines had was a report that they had written by PWC, with a range of claims about APD. The FT reported in February that a Treasury spokesperson said APD, which is forecast to bring in £2.9bn this year, makes an “essential contribution” towards helping meet the government’s deficit reduction plans. “We do not recognise the figures in this [PWC] report or agree with the assumptions behind it” FT link Air Passenger Duty is charged because there is no VAT on aviation, and the industry is zero-rated. There is also no fuel tax on jet fuel. So APD is charged, because of these tax breaks the industry receives. The aviation PR spin is that aviation is vital to the UK economy. In reality, around 80% of trips made by air from the UK are for leisure purposes, the majority taking Brits to spend their money on trips abroad. Cutting APD would only be beneficial to the aviation industry. It would not benefit the UK as a whole. Click here to view full story…
PwC report on APD met by dismissive comments from Treasury – Chancellor has no intention of lowering APD
February 5, 2013 The 4 largest airlines in the UK (British Airways, Virgin Atlantic, EasyJet and Ryanair) commissioned a report from PwC on Air Passenger Duty (APD). The intention was to try and get APD reduced, or removed altogether. PwC put together arguments that the UK economy would benefit, if flyers could fly slightly more cheaply. There was a range of arguments, including more tax take, more investment, spin offs of all sorts. However, this has cut no ice with the Treasury. The pressure from the 4 airlines got a frosty response from the Treasury, which made clear that the Chancellor had no intention of lowering APD. The FT reports that a Treasury spokesperson said APD, which is forecast to bring in £2.9bn this year, makes an “essential contribution” towards helping meet the government’s deficit reduction plans. “We do not recognise the figures in this report or agree with the assumptions behind it,” the Treasury said. The report also had to admit that making flying a bit cheaper would have a negative impact on parts of the UK economy, as yet more Brits took they money to spend abroad. Click here to view full story…
Airlines have another go at trying to get rid of APD. Reminiscent of turkeys and Christmas.
February 4, 2013 EasyJet has produced two press releases, making out that a new study done for the airline industry shows that the UK economy would benefit if Air Passenger Duty was cut. EasyJet, BA, Virgin and Ryanair commissioned PwC to investigate the possible effect of abolishing APD. Using elaborate contortions of facts and logic, and glossing over the point that the main beneficiaries of abolishing the tax would be themselves (not UK plc) they ignore the inconvenient facts that the majority of air travel takes Brits abroad, to spend their money elsewhere. Only a minority – around 20% at most – of air passengers from the UK are on business. The study also ignores the fact that air travel pays no VAT and no fuel duty – making it a very special case, and very under-taxed in comparison to other sectors. Much of the “logic” behind the calculations by PwC of the suggested economic benefits of removing APD involve indirect effects, such as boosting tax take in a variety of sectors, increasing investment, and presumed spin off effects of this over time. All very dubious. No industry likes to pay tax, but there is no reason why air travel – largely discretionary spending by the better off – should escape a fair level of tax. These APD claims by the 4 airlines really are stunning nonsense. Click here to view full story…