Chancellor Alistair Darling’s plan to replace air passenger duty (APD) with a new per-plane “green tax” in a bid to encourage airlines to run fuller and “cleaner” planes has met a hostile response from the aviation industry. But what is it going to do about the tax?
The new tax, outlined in last week’s pre-budget report, will be implemented in November 2009 following formal industry consultation. The Government expects to raise another £560m on top of the existing revenue, bringing the total levy for a year to nearly £3bn. The tax is based on the number of flights taken, rather than levied on individual passengers, and as such, will also affect cargo flights.
British Airways (BA) has called for the APD, dubbed by some as the “poll tax of the skies”, to be scrapped altogether and maintains the Government should join the European Union emissions trading scheme instead.
An environmental tax
The charge was originally introduced under the Conservatives to raise additional Treasury funds and had no relation to green issues. But under Labour, there has been a move to market the tax as an environmental levy.
In February, the then Chancellor Gordon Brown – now Prime Minister – doubled the APD from £5 to £10 following the publication of the Stern Report three months earlier. The re-port, on the economics of climate change, highlighted the importance of dramatically cutting carbon emissions.
However, BT and Ryanair have questioned the link between funds generated by the APD and environmental initiatives. They say there is no guarantee a flight-based tax would contribute to environmental conservation.
A Ryanair spokesman adds: “This is just another tax on ordinary passengers from Government ministers swanning around on private aircraft.”
The airlines’ stance
Unsurprisingly, low-cost carrier easyJet, which has an average aircraft age of 2.3 years, has cautiously welcomed the change as the “right decision” but warns it should not be used as a “Trojan Horse” to fill Treasury coffers. People passing through UK airports already pay £2.4bn in APD, it says. Virgin Atlantic says it will wait for more details of the tax to emerge before taking a stance.
Analysts believe the new APD will mean more airlines will be taxed and they will be forced to clean up their act in the mid to long term. Eli Abeles, an aviation consultant at The ABC Consultancy, says the tax will differentiate higher carbon-emitting planes from cleaner ones. He says: “Airlines with modern fleets and high passenger numbers will welcome the change while those with older, less environmentally friendly aircraft and fewer passengers are likely to kick up a fuss.”
Flybe chief commercial officer Mike Rutter argues that aircraft older than 15 years should be banned from the UK and the government should focus on airlines flying aircraft that should have been phased out or service years ago.
The new tax will expand to cover private aviation and will mark the first time freight carriers are taxed. Industry insiders say environmentalists will welcome the move as some freight airlines fly “dreadful” aircrafts. It will also take into account distances travelled, so long-distance flights will inevitably see a price hike.
Yet, while many welcome the abolition of individual levies, they say the consumer will undoubtedly pay the increased price.
Frank Sangster, head of the environmental tax and incentives group at KPMG, says the airline industry cannot afford to pay the £3bn tax. He says: “Airlines will have to find a way to pass it on to passengers but because it is a tax on aircraft rather than individuals, they will have to look to their marketers to work out how to do it without losing passengers.”