Chancellor Alistair Darling ignored pleas from the travel industry to reduce tax by restructuring and increasing Air Passenger Duty. He had been expected to replace the tax with a new Aviation Duty.
APD will now become a four-brand tax calculated on the distance travelled and will hit long haul travellers particularly hard.
From next November, band A covers Europe and will rise from £10 to £11, band B will increase by £5 to £45 and will include destinations closer to Europe such as the US, while band C will cover the Caribbean and will rise by £15 to £50. The final band will cover Australia and New Zealand and will rise to from £40 to £55.
The government announced a further rise in APD by November 2010 making it £12 in band A, £60 in band B, £75 in band C and £85 in band D.
Meanwhile, the ailing car industry says that Darling is “giving with one hand and taking away with the other”.
Automotive Association president Edmund King welcomed the temporary cut in VAT but a absence of incentives “will not do enough to boost the market”.
He adds that the 2p per litre increase in fuel duty will negate the savings made the VAT cut.