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APD to be replaced by per-plane tax

In his ‘pre-budget statement’ on 10th Oct, Chancellor Alistair Darling announced that the government proposes to replace the present APD (Airport Departure Tax) with a new per-plane tax. This is generally welcomed by AEF and other environmental organisations.

The report says “The Government now intends to reform the taxation of aviation to send better environmental signals and ensure aviation makes a greater contribution to covering its environmental costs. Therefore from 1 November 2009, the Government proposes to replace APD with a duty payable per plane rather than per passenger, and will begin a consultation shortly.”  The full text (3 paras) is at the end of this article.

This proposal (along with others in the statement), was clearly intended to outflank the Conservatives and LibDems, both of whom have come out in favour of ‘per-aircraft’ taxes instead of ‘per–passenger ones.

A per-plane tax, where the tax on a plane is related to its emissions (ie not a flat rate), could have environmental benefits over and above the present per-passenger APD. This is because a tax on emissions gives a direct incentive to aircraft manufacturers and airlines to reduce emissions and fuel consumption. The present APD does not do this, although it still has environmental benefits insofar as it dampens down demand and equalises tax (slightly) across the sectors of the economy.    

Key, however, is the level of the new tax. If it were less than APD, it could give less environmental benefits than the tax it replaced.

While principle is generally sound, there are warning signals. The announcement says “ .. send better environmental signals and ensure aviation makes a greater contribution to covering its environmental costs. ..” However, APD is not (or certainly not unequivocally) an environmental tax. 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.

The government does recognise the issue insofar as it says “ .. ensuring that air travel makes a fair contribution towards the Government’s spending priorities ..). We need to make sure this point does not get conveniently forgotten by 2009, when the tax comes in.

Another concern is that of emissions trading (ET). The government has hinted that when ET comes (earliest 2011), APD might go. By the same token, the new tax might go. Then we would see the taxes removed and replaced by an unpredictable, but probably far smaller, cost to the airlines.  This would, of course, delight the aviation industry, but would go against everything that we stand for in protecting the local and global environment.

The relevant text from the pre-budget statement follows.                    

7.54 Aviation accounts for 6.3 per cent of the UK’s CO2 emissions [but 13% of all greenhouse gas emissions!]  and this is projected to rise to as much as 15 per cent by 2030. Aircraft also contribute to climate change through high-altitude emissions of nitrogen oxides, contrails and the formation of cirrus clouds. The Government’s policy, as set out in the 2003 Air Transport White Paper, is that aviation should pay the costs it imposes on society at large. The Government’s priority has been to work to include aviation in the EU Emissions Trading Scheme, which will help to ensure that the aviation sector plays its part in delivering real carbon reductions across Europe. The Government continues to make good progress on securing this goal.

7.55 The Government believes that domestic air passenger duty (APD) is playing a valuable role in encouraging behavioural change, reducing emissions from aviation and ensuring that air travel makes a fair contribution towards the Government’s spending priorities, including public transport and the environment. The changes to APD rates announced in the 2006 Pre-Budget Report will deliver reductions equivalent to 2.75 MtCO2 a year by 2010. Following an earlier consultation, with effect from 1 November 2008, the Government will correct an anomaly to ensure passengers on ‘business class only’ flights are liable for the standard rate of APD.

7.56 The Government now intends to reform the taxation of aviation to send better environmental signals and ensure aviation makes a greater contribution to covering its environmental costs. Therefore from 1 November 2009, the Government proposes to replace APD with a duty payable per plane rather than per passenger, and will begin a consultation shortly. The consultation will consider ways to make aviation duty better correlated to distance travelled and encourage more planes to fly at full capacity. In introducing this duty, the Government will also take into account the impact on freight and transit and transfer passengers, consistent with its wider economic and social objectives. In advance of the introduction of a per plane duty, APD rates will be frozen at their current level for 2008-09.