Air Passenger Duty (APD)

The airline view on Air Passenger Duty

 

The Board of Airline Representatives in the UK (BAR UK), representing the opinions and interests of over 70 member airlines, continues to request that the UK Government should abolish or significantly reduce Air Passenger Duty (APD) so to enable an internationally competitive and thriving UK aviation sector, and facilitate growth in the wider economy. This has become a vital consideration as the UK prepares to leave the EU.

 

Why APD distorts competition and damages the UK economy

As an island nation, the UK is heavily dependent upon aviation to maintain its global connectivity with some 72% of visits to the UK arriving by air. Yet rather than fully embrace this global connectivity, the UK imposes the highest air passenger tax in the world - damaging economic growth and jobs. A PwC report (2013) highlighted the financial cost burden to UK exports – including tourism, jobs and growth across the wider economy, are far greater than the £3.2bn raised annually in APD.

The majority of European countries either levy no flight tax or have seen the benefits of abolishing it. Only four other EU countries retain a similar tax, of which Germany is the next highest with a charge around half that of UK rates. The Dutch government abolished its tax after just one year, following a flood of passengers across the borders to Belgium and Germany. In the year following Ireland scrapping its tax, Dublin airport reported that the number of Northern Ireland residents travelling through the airport increased by 52%. Similar taxes in Belgium and Sweden never even got off the ground.

APD puts constraints on inbound tourism and business and is a huge incentive for overseas visitors to choose other European countries instead of the UK.

 

Benefits of abolishing or significantly reducing APD

Scrapping or slashing the rates of APD would boost the UK economy, reducing the costs for UK companies trading internationally and, reciprocally, international companies doing business with the UK. According to a study by PwC, GDP would be lifted by 1.7% and 60,000 new jobs created by 2020. Travel and tourism, already one of the UK’s most diverse and valuable industries at over £127bn annually, would further prosper, and getting rid of the anomaly that imposes double taxation on return domestic flying would clearly boost connectivity between the UK regions and the capital and further enable the Government to rebalance the UK economy.

 

Aviation is unfairly targeted relative to other transport modes

A tax introduced in 1994 at just £5 for EU destinations and £10 for the rest of the world has since been regarded by successive governments as an effective revenue raiser and increased by up to 1360% (£10 to £146 Band B standard rate) since its inception. Passengers travelling by other transport modes do not pay any such tax and, indeed, receive huge subsidies (including over £5bn annually for rail, and £2.5bn for buses). After more than 20 years, this tax has lost any shred of economic justification.

 

APD delivers no environmental or infrastructure benefits

APD is not an environmental tax. Unfortunately the significant revenues generated by APD are not in any way hypothecated into environmental or aviation infrastructure but simply go into general Treasury funds. In fact, unlike other transport modes, aviation funds its own infrastructure in the UK - including air traffic control, airport infrastructure, and indirectly even makes large financial contributions to link surface transport to airports. In respect of aviation emissions, ICAO is developing a global environmental deal to replace national and regional measures that will ensure the airline industry can play its part in tackling climate change.

 

A reduction in APD does not mean airlines pay less tax

APD is a tax on any adult passengers departing the UK (as either part of an outward or return itinerary), that is collected by airlines as a ticket tax and passed through to HM Revenue & Customs. Therefore, the benefits of abolishing or significantly reducing APD are directly passed into the wider economy.

 

Exempting children under 16 does not go far enough

Following a strong lobbying effort by the industry, the Government took steps in the right direction by exempting children aged 2-12 years flying economy class from May 2015 with an extension to under 16 years from March 2016. This recognition of the negative impacts of the tax on outbound and inbound family tourism has been welcomed, however, its overall impact is modest – estimated at around 2.5% of the total tax grab, and brings no meaningful reduction in the overall tax burden of UK APD. BAR UK argues that the cuts do not go far enough to restore the overall competitiveness of the UK and that APD should be abolished.

 

What devolving APD to Scotland means for the rest of the UK

Airlines welcome the recognition by the Scottish Government that APD is an uncompetitive tax that is negatively impacting the Scottish economy and support their plans to reduce APD in Scotland by 50%, with a view to abolish it. However, with airlines operating scheduled flights from over 20 airports across the UK’ s relatively small land mass, different APD levels will have significant knock-on effects. There will be unintended consequences and market distortion resulting from passengers choosing cross-border airports to save tax, as experienced in Northern Ireland and neighbouring countries to the Netherlands. The Treasury must acknowledge that partial APD would not work and the piecemeal reduction of this tax will only serve to undermine airports in the north of England and create a domino effect across the whole country. It is only fair that everyone in the UK shares the benefits that abolishing or significantly reducing APD would bring.

 

Key asks to Government from airlines

  1. To conduct a full review on the economic impacts of APD and a commitment to act on the findings.
  2. To remove the UK from the top of the international tax league by abolishing APD or reducing overall levels by 50% at the very least.
  3. To ensure that the devolution process retains balance and fairness in taxation and that benefits of abolition or significant reductions are shared by everyone in the UK.
  4. Where the tax remains, to review the 460% disparity between bands A and B and re-classification of Premium Economy to the same as Economy class (Discounted rate) rather than First and Business class levels (Standard rate).
  5. Where the tax remains, for the UK Government to achieve an exemption solution at EU level to remove the highly damaging anomaly of domestic return flights being taxed on both sectors.

 

A Fair Tax on FlyingBAR UK is a core member of the 'A Fair Tax on Flying' coalition that was set up by the travel industry to lobby the UK Government to reform APD.

 

The Position Statement and a history of APD rates can be viewed  in the links below.