The Chancellor’s announcement on Air Passenger Duty (APD) in yesterday’s budget speech was significant. Less so because of the changes he announced; more for his underlying assumption that APD is here to stay. This is a considerable blow to the aviation industry which for some years now has been united in its opposition to the tax. But it was never going to be abolished.
Successive governments have recognized that aviation is under-taxed. When Kenneth Clarke, as Chancellor of the Exchequer, introduced APD 20 years ago in his budget of November 1993 he said: “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”.
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. Other European countries are bringing in APD-type taxes (through, so far, at a lower level than APD is charged).
Yesterday’s Budget sorted out some anomalies in the system. Currently passengers travelling to the Caribbean, Asia or Australia pay more tax than those going to America. By April 2015 all long-haul passengers will pay the American rate – currently £67 (for a single journey) rising to £71 when the change comes in. The change has probably come about more from political pressure than a desire to please aviation industry lobbyists. The rate on short-haul flight – £13 for a single journey – will remain the same. APD will be imposed on private jets.
The details of the changes can be found here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293853/TIIN_6063_air_passenger_duty_banding_reform.pdf
The changes outlined will cost the Treasury £985m over four years from 2015, according to Budget documents. It does mean that aviation is even more under-taxed but the big message is: APD is here to stay.