House of Commons Library

Air passenger duty and regional airports

Published Friday, October 23, 2015

Air passenger duty (APD) is charged on all passenger flights from UK airports. Some regional airports have campaigned for lower rates of tax being charged on flights from the regions. Recently regional airports in England have raised concerns as to the devolution of APD to the Scottish Government - as provided for by the Scotland Bill 2015/16 - and, potentially, to the Welsh Assembly. In July 2015 the Treasury published a discussion paper on options to support English regional airports, though to date the Government has not announced any concrete proposals.

Air passenger duty (APD) is charged on all passenger flights from UK airports.  The rate of tax varies according to passenger destination and the class of passenger travel.[1]  The tax is estimated to raise £3.2 billion in 2014/15.[2] 

There has been a long-running campaign to have APD abolished led by travel organisations and airlines, though during its period of office the Coalition Government opposed cutting tax rates or abolishing the tax on grounds of cost.[3] Duty rates were increased in line with inflation for both 2013/14 and 2014/15.[4] In his 2014 Budget the Chancellor, George Osborne, announced that from April 2015 the 4-band structure of the tax would be replaced with 2-bands, with all long-haul flights charged the rate of tax. In addition the rate of tax on private jets would be substantially increased.[5] This reform was estimated to cost £215m in 2015/16, rising to £250m by 2018/19.[6] Subsequently in his Autumn Statement in December 2014 Mr Osborne announced that flights for children would be exempted from the tax: first, for children under 12 from 1 May 2015, and then for children under 16 from 1 March 2016. This was estimated to cost £45m in 2015/16, rising to £85m in 2016/17.[7]

Some industry stakeholders have argued that the excess capacity seen at airports in London and the South East could be tackled by charging lower rates of APD for flights from regional airports. The Coalition Government considered this option as part of a review of the tax during 2011, but decided against it.  In a report on aviation strategy published in May 2013, the Transport Select Committee recommended the Government review the case for a differentiated APD rate.[8] Citing analysis by HM Revenue & Customs, published in October 20102,[9] the Government took the view that it was unlikely that a new rate structure would be of significant help.[10]

The case for having a differentiated APD rate has been raised more recently in the context of devolution. First, in July 2012 the Northern Ireland Assembly was given powers to set APD rates on direct long-haul flights, and subsequently the Northern Ireland Executive introduced provisions to set these rates to zero from 1 January 2013.[11] Second, in September 2014, the cross-party Smith Commission recommended the devolution of APD to the Scottish Parliament, and provision to do this is included in the Scotland Bill 2015-16. The Scottish Government has stated that once the tax is devolved, it plans “to reduce APD by 50% within the term of the next Parliament, with a view to eventually abolish the tax when public finances allow.”[12] Finally, in February 2015, as part of the St David’s Day Agreement on the future of devolution in Wales, the Government announced it would consider the case for devolving APD to the Welsh Assembly.[13]  Regional airports in England have expressed concerns that lower APD rates in Scotland or Wales would put them at a significant competitive disadvantage.[14]

In February 2015 the Chancellor announced that the Government would review potential options to support regional airports affected by devolution.[15] Following the General Election the Conservative Government presented its first Budget on 8 July, and at this time it published a discussion paper on this issue, looking at three possible options: devolving APD within England, varying APD rates within England; and, providing aid to regional airports within England.[16] Responses were invited by 8 September. To date the Government have not published any details as to how it might take these options forward.

The issue was the subject of a Westminster Hall debate, initiated by Julian Knight, on 20 October (HC Deb cc297-320WH). On this occasion the Financial Secretary, David Gauke, said that the Government were in the process of considering the evidence submitted, "and we will respond in due course to the points raised in the consultation" (c319WH). 

Further information on the development of APD since its introduction in 1994 is provided in three Commons Briefing Papers:

The wider issues of airport capacity and the Government’s aviation strategy are examined in,

Notes: 

[1] Duty rates for 2015/16 are published on Gov.uk.

[2] Office of Budget Responsibility, Economic and fiscal outlook Cm 9088, July 2015 p93 (Table 4.5)

[3] Treasury Minister David Gauke set out the Government’s position in an Opposition day debate on APD in October 2013: HC Deb 23 October 2013 c403.

[4] Both increases were announced a year before they took effect: Budget 2012 HC 1853, March 2012 para 2.158 & Budget 2013 HC 1033, March 2013 para 2.157

[5] Budget 2014 HC 1104, March 2014 para 2.160-1

[6] HC 1104, March 2014 p57 (Table 2.1 – item 36).

[7] Budget 2015, HC 1093, March 2015 p66 (Table 2.2 – item c)

[8] Aviation Strategy, HC 78 of 2013-14, 10 May 2013, para 106

[9] Modelling the Effects of Price Differentials at UK Airports, HMRC Research Report 188, October 2012

[10] Transport Committee, Sixth special report, HC 596 of 2013-14, 22 July 2013, pp13-14. . See also, PQ222889, 25 February 2015 & PQ226135, 11 March 2015.

[11] Under the Air Passenger Duty (Setting of Rate) Act (Northern Ireland) 2012. Details on the scrutiny of this legislation by the Assembly is on its site.

[12] Scottish Government, Scotland’s Economic Strategy, March 2015 p73. A Commons Briefing Paper gives more details on the devolution of tax powers to the Scottish Parliament (SN7077, 1 July 2015).

[13] HM Government, Powers for a purpose: towards a lasting devolution settlement for Wales, Cm 9020, February 2015 para 4.13

[14] For example see, Transport Committee, Smaller airports, HC 713 of 2014-15, 13 March 2015 pp8-9

[15] HM Treasury press notice, Speech by the Chancellor, George Osborne: Our long term economic plan for the North East, 27 February 2015

[16] HM Treasury, Discussion paper on options for supporting English regional airports from the impacts of air passenger duty devolution, July 2015

Commons Briefing papers CBP-7333

Author: Antony Seely

Topics: Aviation, Taxation

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