UK government reported to have dropped plans to replace Air Passenger Duty with a greener per plane levy
Tue 15 Mar 2011 – According to a report in the Financial Times, the UK coalition government has scrapped proposals to change its aviation tax system from a per passenger duty to a per plane levy. The Conservatives and Liberal Democrats had pledged the switch on taking office as part of an environmental commitment and plans to raise more revenues from the industry (see article). However, ministers have now been advised that a per plane levy amounts to the imposition of a fuel tax and would breach the Chicago Convention on international civil aviation, which prohibits such a levy on international flights. Meanwhile, an industry alliance of airlines, airports and tourism organisations has launched a campaign to persuade the UK government to make aviation tax, in their opinion, “fairer”. A group of environmental NGOs has launched an opposing campaign calling for a removal of tax exemptions on aviation.
The previous Labour government had in 2008 proposed a similar change from Air Passenger Duty (APD) to a per plane levy that would have included cargo and business aviation flights for the first time. It was argued that a switch would encourage airlines to bump up their passenger load factors and avoid carbon-inefficient, half-empty flights.
After protests, notably from the United States (see article), that the change would contravene international law, the switch was dropped after a public consultation process. The Labour government also concluded the reform would adversely impact on an aviation industry already going through financially hard times (see article).
The reform is opposed by the larger airlines, which stand to lose out as their transferring passengers are not currently subject to Air Passenger Duty (APD) and argue that it would create competitive distortions. Low-cost airlines with their higher load factors, on the other hand, support the change to what they describe as a fairer and greener tax.
It would also be welcomed by environmental NGOs. “A per plane duty is still supported by us as a means of encouraging efficiency, and it is disappointing that it has been dropped without even going out to consultation to see whether these issues can be resolved,” said Tim Johnson of the Aviation Environment Federation (AEF).
Why the current government had not heeded the lessons of the previous outcome is unclear but the climb-down is an embarrassment given the taxation change was a key environmental policy commitment, although the possibility that the government was becoming lukewarm on the reform was signalled last July (see article). However, ministers have once again been advised by legal experts that a per plane levy infringes key tenets of the Chicago Convention, signed by 52 states in 1944.
The UK government is already facing a legal challenge by a number of US airlines against their inclusion in the EU Emissions Trading Scheme from January 2012 (see article). The case has been referred to the European Court of Justice although no date has yet been set for the hearing. The airlines contend that forcing their participation in the scheme is illegal under the Convention and also breaches the bilateral air transport agreement between the USA and the UK.
Meanwhile, 25 airlines, airports, tour operators and trade associations have launched ‘A Fair Tax on Flying’ campaign that calls on the UK government to make aviation taxation fairer.
The alliance has set five tests they are asking the government to take into account as it reviews aviation tax, which include potential tax increases, tax bands defined by capital cities and whether the tax will be offset by government income from the EU ETS.
“The UK tax on flying is the highest in the world, raising over £15 billion ($24bn) in the next five years – more than the tax on banks,” said Simon Buck, Chief Executive of the British Air Transport Association. “Not one penny of this is used to help the environment. Instead it threatens jobs and economic growth. We hope the Government takes note of the five tests and gets to grips with the points the campaign makes about this ever increasing barrier to UK travel, trade and tourism.”
In response, three NGOs – Airport Watch, AEF and the Campaign for Better Transport – have started their own opposing campaign, which argues that compared to car travel, air travel benefits from an annual tax subsidy of around £9 billion ($14bn) as a result of airlines not having to pay value added tax or fuel tax, and airports escaping tax on the sale of alcohol and tobacco in duty-free outlets.