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Select Committee slates Chancellor on aviation tax

The Treasury Select Committee published its 4th report on 20th April 06. Among its concerns were that the proportion of environmental tax has declined. They drew particular attention to aviation and APD (Airport Passenger Duty).


The Treasury Select Committee published its 4th report on 20th April 06. Among its concerns were that the proportion environmental tax has declined. They drew particular attention to aviation and APD (Airport Passenger Duty).See below for extract from the report. For the full section of the report on environmental taxes, see attachment at bottom.”In particular, we are puzzled by the Government’s justification of its decision to freeze air passenger duty (APD) for the fifth year running.Between 2000 and 2004, the annual number of passengers liable to pay APD rose by some 25 million, or 35%. Treasury officials appeared to argue that, although air passenger numbers had admittedly increased, they would have increased more, were it not for the increases in oil prices, and that increasing APD would result in a decrease in passenger numbers. The United Kingdom is currently lagging behind on its domestic CO2 targets – CO2 emissions in fact increased in 2004, the most recent year for which data is available; furthermore, according to European Commission figures, greenhouse gas emissions in the EU from international aviation rose 73% between 1990 and 2003.

In the context of the challenges facing the United Kingdom in reducing its greenhouse gas emissions, we find the Government’s attempt to justify freezing air passenger duty (APD) for the fifth year running to be incoherent and unconvincing. It is telling that the only aviation-specific taxation measure contained in the Budget is to widen the scope of the European APD to include Croatia—meaning that it is now £15 cheaper to fly economy class to Croatia.

Consequently, we recommend that the Government give serious consideration to increasing rates of APD. In the context of the wider problem of climate change, we consider it entirely inappropriate that, between 2000 and 2004, tax receipts from APD should have fallen by 8% whilst passenger numbers have risen by 35%. If this trend continues, the Government risks allowing APD to become an ineffective policy instrument which does nothing to recognise or address the contribution made by aviation to greenhouse gas emissions.

In this context, we note the Chancellor of the Exchequer’s statement to us that the changes to APD announced in Budget 2000 were “if I am right … a cost neutral change rather than an overall cut in the amount of duties that we intended to receive”. We remind the Chancellor of the Exchequer of his statement to the House on Budget 2000, when he announced “a new, fairer and lower air passenger duty – at an overall cost to the Exchequer of £80 million a year”.

We accept the point made by both the Chancellor of the Exchequer and officials that it is important to bring aviation within the EU Emissions Trading Scheme (ETS).

However, we are mindful that, to be included in phase 2 of the EU ETS (which runs from 2008 to 2012), aviation will have to be included in the ETS by 30 June 2006.[321] Member states have until this date to submit their national allocation plans for phase 2; if aviation is not included in those national allocation plans, aviation emissions are unlikely to be included in any ETS-type scheme until after 2012.

Time is running out for aviation emissions to be subject to the ETS before 2012. Consequently, for the Government to say that it is seeking to bring aviation within the ETS is only a partial response to the pressing issue of climate change currently facing the United Kingdom. In addition to continuing to press for action at the EU level, the Government must also act at a domestic level. We refer the Government to its undertaking, in its Statement of intent on environmental taxation, to “aim to reform the tax system to increase incentives to reduce environmental damage”. We recommend that the Government give urgent consideration to how it can best use the tax system to increase incentives to reduce the harmful environmental effects of aviation.”

Treasury Select Committee report extract

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