Taxing issues on air travel

The outcry from the airline operators about the coming rise in air passenger duty (APD) comes as no surprise. I wouldn't expect anything else. Any sector of the economy will always argue against paying more tax. Yet their complaints overlook the huge tax advantages they currently enjoy.

Air travel is free of VAT. That is a huge advantage in the retail market. Whilst most other goods and services are liable for VAT, air travel comes tax free. APD does not constitute a significantly bigger burden than VAT would, were air tickets to be liable for it.

But this is not the only tax advantage enjoyed by airlines. They pay no fuel duty. This is a long standing advantage that goes back to post war international trade talks. Were fuel duty to be introduced by governments setting their own rate, it would be easy to fly to a country with a low rate to fill up. The effect would be a duty war between countries and almost certainly more pollution as planes fly further to pick up fuel and carry more weight than necessary.

So, two significant tax advantages are enjoyed by an industry whose customers tend to be mainly from the better off. The rise in APD helps to balance out these advantages.

The government is looking into replacing APD with a duty on aircraft. When I worked in the Policy Unit in Cowley St, I worked on aviation policy and I proposed this tax change when I wrote a paper on air travel. The aim is to make air travel more environmentally efficient. Under APD, a full aircraft (and therefore one used more fuel efficiently) pays far more tax than a plane flying half empty. This does not make environmental sense. So hopefully, this tax change will be implemented.

Back to the duty increase coming in next week. One of the arguments put up by opponents of the rise is that it will make holidays in the Caribbean "unaffordable". Are we really meant to cancel the increase because expensive holidays in the Caribbean which are well beyond the means of the overwhelming majority of people will end up costing more for those wealthy enough to afford them in the first place? I think not.
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