Aviation tax reform consultation response
Teddington action group has lodged a response to the Aviation Tax Reform Consultation. The Government is considering reducing APD saying that
“Following our departure from the EU, the government is considering the reintroduction of an APD exemption for the return leg of a domestic return flight. Under this proposal, domestic flights would continue to be treated within the shortest band of APD, although airlines would not be liable to pay APD for passengers travelling on the return leg of a domestic return flight”
We do not think that APD should be reduced. Aviation already enjoys an unhealthy advantage over less carbon intensive forms of transport and even now makes remarkably little contribution to tax revenue.
The consultation closes on the 14th June. Information can be found at https://www.gov.uk/government/consultations/consultation-on-aviation-tax-reform
Responses can be emailed to ETTAnswers@hmtreasury.gov.uk
Our responses to the consultation are:
- Do you agree with the government’s initial policy position that the effective rate of domestic APD should be reduced? In your view, what would be the positive and negative effects of such a change, particularly in light of the government’s objectives for aviation tax? We do not believe that the rate of Air Passenger Duty should be reduced as such action could seriously limit our ability to meet our climate change targets which will depend on curbing demand for aviation before we reach an irreversible tipping point of global warming. There would be no positive effect.
- What evidence can you provide about the impact of an effective reduction in the domestic rate of APD on Union and regional connectivity? The impact is likely to be increased demand, resulting in more sustainable forms of transport such as rail (which does not benefit from tax breaks) becoming less competitive and less used. Recent news reporting suggests that rail will only be at 60% capacity for the next four years. There would only be increased connectivity in relation to the most marginal of routes. The best and most sustainable way of supporting these is to provide a case by case subsidy (PSOs) judged on the economic and social benefits the routes bring (and having regard to the environmental costs). This should certainly not involve a blanket reduction of APD, which for profitable and popular routes is unnecessary, especially where alternative more sustainable options are available (e.g., London to Manchester).
- How would a reduction in the effective rate of domestic APD affect airlines? Will the benefits be passed onto consumers in ticket prices or retained by airlines? The consultation proposals are underpinned by a flawed understanding of the economics and the way markets work. In a free market, ticket prices are determined by supply and demand. So, if APD were to be reduced, it is almost certain the airlines and airports would seek to retain the cost saving, boosting their profits at the expense of the environment and the Exchequer.
- Which domestic air routes, if any, are likely to be introduced/restart following any effective reduction in the domestic rate of APD, and what wider benefits would these routes provide? Probably none – in the case of marginal routes such as Newquay to London, previous efforts to retain these routes have failed largely because there was insufficient demand as well as the practicalities of air travel (checking in early, inconvenient airport locations necessitating road transport and potential interruptions due to weather and ATC delays). The only support necessary for regional airports is to stop allowing expansion of south east airports into hubs, which drain resources away from the regions.
- Which existing domestic air routes, if any, would benefit from an increased number of services following any effective reduction in the domestic rate of APD, and what wider benefits would these routes provide? Northern Irish routes may benefit from being able to compete more effectively with airports in the Republic but it’s impossible to try and put all airports on an equal footing where EU rules and Public Service Obligations (PSO) apply.
- By how much would you estimate that the number of passengers currently flying domestically increase? Could be 10% or more. Passenger numbers have grown despite APD because of cut-throat competition between budget airlines – they have recently talked about offering air fares from £9.99 to encourage bookings.
- What could the environmental impact of reducing the effective domestic rate of APD be? How could any negative impacts be mitigated? There would be higher levels of carbon and other GHG. In 2018, aviation accounted for 7% of UK emissions at 39.3 Mt (largely unchanged in a decade) and remains one of the hardest sectors to decarbonise. Reducing APD would be a very regressive step and ensure that Net Zero targets would not be met. Government is putting too much emphasis upon improvements in aircraft efficiency and use of sustainable aviation fuels, and not enough on demand management.
- What could the impact of reducing the effective domestic rate of APD be on other modes of transport (e.g. road/rail)? It would lead to less use of greener methods of transport such as rail and coach.
- If the effective rate of domestic APD is reduced, would you favour the introduction of a return leg exemption or a new domestic rate? What would you see as the comparative risks and benefits of these options? We do not favour any reduction.
- Is there an alternative approach to reducing the effective rate of APD on domestic flights, that you think would be more appropriate than either of the options identified? To encourage more sustainable travel, APD could be doubled or tripled for all routes where alternative means of transport are available for journeys less than four hours (so for example all Manchester fares to LHR should increase). In April this year, following a Citizens’ Convention, France voted to ban domestic flights on routes that could be travelled by train in less than two and a half hours – this would affect 12% of its domestic flights.
A return leg exemption
- What are your views on the way a return leg exemption could operate as set out in paragraph 2.8? What are the benefits and risks of this proposal? What amendments would you suggest, if any? There should be no return leg exemption.
- Do airlines currently differentiate between single and return tickets in their booking systems and, if so, how?
- What evidence could airlines provide to HMRC to demonstrate that a passenger was travelling on a return ticket?
- If the return leg exemption were to be introduced, how quickly could airlines integrate it within their operating systems to allow them to them to provide evidence to HMRC on their APD liabilities?
- 15. Are there any particular considerations around the application of a return leg exemption to business jets, in light of how business jets are operated?
A new band for domestic flights
- Do you agree with the government’s initial position that a new domestic band would be the most appropriate approach to reducing the rate of APD on domestic flights? No, for reasons given above.
- What are your views on the way a new domestic rate could operate as set out in paragraph 2.11? What are the benefits and risks of this proposal?
What amendments would you suggest, if any?
- If a new domestic rate were to be introduced, how quickly could airlines integrate it within their operating systems to allow them to them to provide evidence to HMRC on their APD liabilities?
International distance bands
- Do you agree with the government’s initial policy position that the number of APD distance bands should be increased? In your view, what would be the positive and negative effects of such a change, particularly in light of the government’s objectives for aviation tax? No. As long haul is the most difficult to decarbonise, we propose that international APD should be increased (not banded!) and the increased UK revenue used to fund research into sustainable aviation fuels so that the UK can become a leader and stay connected in a way that is environmentally friendly. The IEA’s (International Energy Agency) recently released roadmap for the global energy sector indicates that to meet Net Zero, demand management will be crucial: ‘The NZE assumes that aviation growth is constrained by government policies that promote a shift towards high-speed rail and rein in expansion of long-haul business travel, through taxes on commercial passenger flights.’
- What could the impact on the environment of a change to the banding structure? How could any negative environmental impacts be mitigated? Without making any changes to the banding structure, reduced APD could be offered to flights that use 100% SAF.
- What evidence can you provide about the impact of an increase in the number of APD distance bands on international connectivity? We don’t need any more international connectivity. More Britons travelled abroad in 2018 than other nationality – over 126 million (8.6% of all international travellers) and although not all would have flown, many would have. The UK was only 0.88% of the total global population in 2018 and this is proof that we are contributing far more than our share of emissions. As hosts of COP26 we need to be setting a better example.
- Which of the policy options for increasing the number of international distance bands do you think is most appropriate? Please explain your answer.
- Is there an alternative banding structure that could better meet the government’s objectives as outlined in paragraph 1.1?
- If a new international distance band structure were to be introduced, how quickly could airlines integrate it within their operating systems to allow them to them to provide evidence to HMRC on their APD liabilities?
Frequent flyer levy
25. Do you agree with the government’s assessment that APD should remain as the principal tax on the aviation sector? Would you propose any alternative tax measures which could further align the aviation tax framework with the government’s environmental objectives? No. The existing aviation taxes are not fit for purpose and are grossly unfair and prejudicial to other forms of transport – particularly rail. The existing taxes also offer no incentive or inducement to the industry to act responsibly in controlling either emissions or noise. Frequent flyer levies need to be introduced to ensure that those responsible for more than their fair share of emissions pay an escalating surcharge. This was supported by 80% of the UK Citizens’ Climate Assembly in their report in Sept.2020 and by the Committee for Climate Change. Devlin and Bernick for the New Economics Foundation proposed a similar scheme in 2015 after conducting a detailed survey of wealth and spending patterns. However, the Government’s current commitment to reduce carbon emissions by 78% by 2035 requires a stronger disincentive. In order to enable people to have an annual family holiday, the first flight would be free of the frequent flyer levy then we propose applying an additional £50 for the second flight, £150 for the third, £250 for the fourth and so on.
Air Miles and other such incentives should be banned.
There’s also the option of taxing aviation fuel now that we are out of the EU. The Chicago Convention prohibits VAT being charged on fuel brought into the country already loaded onto the plane, but it does not prohibit the charging of duty on new fuel put into the plane. Countries such as US, Japan and India already charge tax on aviation fuel.
Ditto and many thanks for your expert work! Well done.
Thanks once again to all at TAG for a comprehensive response, and for doing all this tedious work so we don’t have to. It is quite incredible that one of the noisiest, most polluting and most disruptive forms of travel is subsidised so heavily. If nothing else the pandemic has shown that we can do without International travel on airlines.