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UK aviation duty proposals are ill-conceived and should be rescinded, say airlines

UK aviation duty proposals are ill-conceived and should be rescinded, say airlines | BAR UK, Board of Airline Representatives UK, Mike Carrivick, Aviation Environment Federation

HM Treasury
Tue 29 Apr 2008 – As the public consultation period ended last Thursday (April 24) on a proposed UK government decision to replace Air Passenger Duty (APD) with a flight-based Aviation Duty, the Board of Airline Representatives in the UK (BAR UK) has called on the Treasury to rescind the tax entirely, calling it “ill-conceived”.
 
The planned change in policy was announced last year by the Chancellor of the Exchequer, Alistair Darling, and is due to come into force from November 2009. If enacted, the duty would be paid not on the number of individual passengers but on a per-plane basis.
 
“The new per-plane aviation duty will send an improved signal of environmental costs and ensure aviation makes a greater contribution to covering its environmental costs,” said Darling when making the initial announcement.
 
The amount raised by APD, first introduced in 1994, in the 2007-8 fiscal year is forecast at around £2 billion ($3.95bn) and the new scheme is expected to raise a further £520 million ($1bn). The Chancellor announced in last month’s Budget that revenue would rise by 10% in the second year of the new system.
 
“The proposal to introduce aviation duty is a very clumsy attempt to disguise a declared money-taking opportunity as an environmental initiative – nothing could be further from reality,” said BAR UK’s Chief Executive, Mike Carrivick.
 
“Apart from the many legal aspects that arise, this duty would impose competition distortions and drive business away from the UK. It also fails the Treasury’s own stated principles in so many ways.
 
“The practicalities of this duty fail the theory in devastating ways – it must not be introduced.”
 
The purpose of the change, which is supported by the other two main political parties, is to make the duty more correlated to distance flown and encourage airlines to fly with higher passenger loads. There are winners and losers with this scenario. Low-cost carriers like easyJet and Ryanair could benefit as they fly shorter distances with higher load factors. Losers would include freight-only operators, which escaped APD, and BAR UK warns that a significant portion of all-freight operations could relocate to airports outside the UK, adversely affecting exporters and the cargo transhipment business.
 
The Aviation Environment Federation, an environmental NGO, also has doubts about the proposal as its stands. “APD is not (or certainly not unequivocally) an environmental tax,” it says. “It may be regarded as a general revenue-raising tax, intended to support public services. In this respect, the logic of replacing APD with an emissions-related tax is very dubious. A more appropriate solution would be to retain APD (or equivalent) as a revenue-raising tax and make the emissions-based an additional tax. It might be administratively simpler to roll these two components into a single tax; in which case the tax would have to considerably higher than the present APD.”
 
BAR UK says the duty is in conflict with the Chicago Convention as it specifically extends to all parts of the world and “openly taxes airlines for emissions outside of UK airspace”. It also impacts on some foreign airlines’ ‘5th Freedom Rights’ which allows them to pick up passengers in the UK who are destined for a third-party country.
 
A similar air passenger ‘green’ tax is due to come into force in the Netherlands this summer. This was recently challenged, and since lost, by airline and airport groups in the Dutch courts who had argued the tax infringed the Chicago Convention
 
The way, forward, says BAR UK, is not via taxation but through a properly-designed emissions trading scheme, linked to driving efficiencies through technology, operations, infrastructure and “positive economic measures”.
 
The Treasury has yet to indicate what would happen to the duty once aviation is included in the EU Emissions Trading Scheme (ETS), probably in 2012. At a recent conference, a senior European Commission official said any EU country imposing an environmental passenger or aircraft tax would be expected to repeal it once the ETS came into force (see story).
 
Carrivick told GreenAir that he had raised the potential prospect of ‘double taxation’ in meetings with officials.
 
“The Treasury seems very concerned not to lose any money at all, and has not given any sign that the duty would be reduced as and when ETS is introduced,” he said.

“Whether this duty complies with the Chicago Convention has to be addressed as polarised thoughts exist on the subject. We await the Treasury’s thoughts with interest.”
 
 
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