Fair taxes on aviation could prevent over 20% of public sector cuts

22nd October, 2010

A simple analysis by AEF indicates that fair taxes on aviation could prevent over 20% of planned public sector cuts.

The Spending Review plans to cut expenditure by £81 billion per year by 2014/2015. Of this, £36.7 billion is cuts to public services. (Information from Institute of Fiscal Studies presentation Where did the axe fall? October 2010, slide 21.)

Last year HM Treasury advised us that if aircraft fuel was taxed at the same rate as petrol and if VAT was charged, the tax take would be over £10 billion per year. That represents some 27% of the proposed cuts.

The Institute of Fiscal Studies says that the cuts are ‘regressive’, hurting poorer people most. But because aviation is enjoyed primarily by those on middle and higher incomes – see recent article – higher aviation tax would be ‘progressive’.

Other assumptions could, of course, be made, and would generate different figures. Looking at the total cut in spending instead of just the cut to public services would, for example, give a lower percentage, while extrapolating tax take from now to 2015 to allow for aviation growth would give a higher percentage. The government’s intent is to pay off the deficit in 4 years. But if the deficit were paid off more slowly, as is Labour and Green Party policy, the same aviation taxes could pay off a far greater proportion of the deficit and further reduce public sector cuts.

Our estimate clearly indicates that aviation taxation is not just about reducing environmental impacts from one sector but has significant social and economic dimensions.