Pre-budget report 2008: per-plane duty is dropped but taxes on air travel will start to rise

25th November, 2008

Plans to reform the air passenger duty to include transfer passengers and freight have been dropped, Alistair Darling announced yesterday in the pre-budget report. But changes are being made to the duty, notably the introduction of 2 extra distance categories or ‘bands’, to allow the rate to correspond better to journey length, and increases across all categories.

Currently, intra-European flights attract a £10 tax for the lowest class seats or £20 for premium seats, while all longer journeys are taxed at £40 for reduced-rate and £80 for premium seats. From November next year, rates for short, intra-European journeys in the lowest class seats will see a marginal increase from £10 up to £11, while single journeys over 2000 miles will incur a £45 levy. Trips over 4000 miles will be charged at £50 and those over 6000 miles will be taxed at £55. All premium class seats will be taxed at a higher rate and there will be further increases from 2010. Full details are given at www.hmrc.gov.uk/pbr2008/pbrn20.pdf

AEF is disappointed that the government has backed down on its plans for a per-plane duty that would have brought in freight transport and transfer passengers and given an incentive for maximum passenger loads. Nevertheless we welcome the increases in air passenger duty and the better correlation between emissions and taxation that the new banding will offer. Given the growing environmental impact from UK aviation and the fact that high earners fly far more than those on low incomes, we believe there is very strong justification for tax increases in this sector. Aviation fuel remains tax-free and there is no VAT on air tickets.

The inclusion of aviation, from 2012, in the European emissions trading scheme will not, on its own, bring aviation’s greenhouse emissions down to a level compatible with UK targets to reduce emissions from all sectors by 80% by 2050. There are a number of areas in which the scheme needs to be tightened, while at the same time other measures will be necessary for the effective management of aviation’s environmental impact. The changes announced in the pre-budget report are, we believe, consistent with this aim.

Voters, however, need consistent messages from government on aviation policy. The climate bill will require all sectors of the economy to contribute to the challenge of reducing carbon emissions. Now, more than ever, planning policy must be brought into line with environmental and fiscal policies.