Per-plane tax – the story so far

16th July, 2010

Per-Plane Duty (tax)

The issue of a per-plane duty (PPD) to replace APD (air passenger duty) has been rumbling on for a couple of years and is still not resolved.   

Following a pressure from NGOs such as AEF and the LibDems, the previous government announced in 2008 that there would be a switch to PPD.  But during the banking crisis at the end of that year they decided not to go ahead with the proposal because of concerns about changing the system at a time of such uncertainty.

The new coalition government included a change from APD to PPD in its manifesto.  But George Osborne, the Chancellor of the Exchequer, said in his emergency budget “The government will report back in the autumn on its proposal to impose a per plane tax as opposed to a per passenger tax to contribute towards a reduction in carbon emissions.”

AEF understands the delay is because there had not been time to work out the details. There are certainly some difficult issues to resolve, but we are concerned that this could be an excuse to delay or even go back on the coalition commitment. 

The main reason for favouring PPT as opposed to APD is that the PPT would be more closely aligned to the environmental impact.  Because APD is levied on passengers, current tax on a half empty plane is much less than tax on a full plane, even thought the environmental impact is much the same.

PPT would also bring in transfer passengers, business aviation and freight, all of which are except from APD.  Broadening the tax base would make the tax fairer and reflect better the environmental impacts of all flights.

Two principles of the new tax are generally accepted – that the tax must relate to the size of the aircraft and to the distance flown.  But filling in the details is problematic.

Take-off weight and emissions of NOx (nitrogen oxides) have been proposed as measure of size.  Fuel consumptions or CO2 emissions per km would be better proxy for size, but would probably fall foul of the Chicago Convention that prevents the taxing of jet fuel.             

Distance could be reflected as a series of more or less coarse distance bands or it could be related to the miles flown. 

A major concern about PPT is ‘leakage’.  If the tax is high enough to be useful, some passenger might be tempted to take a short flight from the UK to NW Europe and then change onto a long-haul flight there.  By doing this they would only incur the lower tax on a short-haul flight instead of the higher tax on long-haul.

Whatever happens in the autumn with PPD, it is necessary to increase aviation tax.  Aviation is under-taxed in comparison with most other goods and services, enjoying privileges worth about £10 billion pa.  In these times of austerity and tax rises there is no excuse for aviation getting a free ride.