House of Commons Library

Air passenger duty : recent debates & reform

Published Tuesday, January 12, 2016

This note looks at the recent debate on taxing aviation, in the context of concerns about the structure of air passenger duty, the rates of tax, and the Coalition Government's reform of the tax in the 2014 Budget. The development of APD since its introduction is set out in two other Library notes (SN413 & SN6426).

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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.  The tax is estimated to raise £3.2 billion in 2014/15.[1] 

Some commentators have argued that APD should be charged on planes rather than passengers, to provide better incentives for passengers and airlines to cut carbon emissions from aviation.  In January 2008 the Labour Government launched a consultation on just such a change, but in November that year the then Chancellor Alistair Darling announced that instead of a per-plane duty, APD would be restructured: the tax would be based on four geographical bands set at intervals of 2,000 miles, so that travellers flying farther would pay a higher rate of duty.[2] The new structure took effect from 1 November 2009, despite concerns about the impact of the new system for passengers making long-haul flights, particularly those making journeys to the Caribbean.[3] 

During the 2010 General Election campaign both the Conservatives and the Liberal Democrats argued for reforming the tax, and in its first Budget on 22 June 2010 the new Coalition Government stated that it would “explore changes to the aviation tax system, including switching from a per-passenger to a per-plane duty.”[4]  However, in the 2011 Budget the Government announced that it would not proceed with a per-plane duty “given concerns over the legality and feasibility of this approach.”[5]  It published a consultation paper setting out options for simplifying the rate structure as well as proposals to extend the scope of the tax to flights on business jets to create “a simple tax system for air transport services in the UK, which does not hamper growth, which ensures a fair contribution toward the public finances from the sector and which is consistent with the Government’s determination to reduce emissions across all parts of the economy.”[6]  At this time the Government also said that while it was assumed that duty rates should go up each year in line with inflation, the rates of duty would be frozen for twelve months, with the increase for 2011/12 deferred until April 2012.[7]

In December 2011 the Government announced that it would proceed with extending the tax to business aviation, with effect from 1 April 2013, but that it would retain the current banding structure.[8]  Duty rates would rise in April 2012, fully reflecting the rise in inflation over the past two years.[9]

Over this period travel organisations and airlines campaigned consistently for the tax to be scrapped – though Ministers opposed cutting tax rates or abolishing the tax on grounds of cost.[10] Duty rates were increased in line with inflation for both 2013/14 and 2014/15.[11] However 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. Mr Osborne also proposed that the rate of tax on private jets would be substantially increased.[12] This reform was estimated to cost £215m in 2015/16, rising to £250m by 2018/19.[13] Subsequently in his Autumn Statement that year the Chancellor announced that APD on economy flights would be scrapped for children in two stages: first, from 1 May 2015 for children under 12, and then from 1 March 2016 for children under 16.[14]

No further changes have been made to APD over the past year, though duty rates are to be increased in line with inflation from 1 April 2016.[15]

In May 2015 the Conservative Government introduced the Scotland Bill 2015/16, to implement the recommendations for the further devolution of powers to the Scottish Parliament made by the Smith Commission in November 2015. As part of this package of measures, APD is to be fully devolved to Scotland.[16] Regional airports in England have raised concerns about the impact that devolution might have on their competitiveness, if the Scottish Government decided to reduce or abolish the tax.[17] In July 2015 the Government published a discussion paper on options to mitigate these effects – looking at the case for devolving APD or varying its rates within England, or providing aid directly to affected airports.[18] Responses were invited by 8 September, although to date the Government has not made any announcement as to how it might proceed.

Guidance on the operation of the tax, and statistical data on its receipts, is published by HM Revenue & Customs.[19]

Notes:

[1]     Office of Budget Responsibility, Economic and fiscal outlook Cm 9153, November 2015 p103 (Table 4.6)

[2]     HC Deb 24 November 2008 c499

[3]     see, APD: the approach of the Labour Government Commons Briefing Paper SN6426, 19 September 2012.  A second note discusses the tax’s introduction APD: introduction, SN413, 19 September 2012.

[4]     Budget 2010 HC 61 June 2010 p36

[5]     Budget 2011 HC 836 March 2011 para 1.152-3

[6]     HM Treasury, Reform of Air Passenger Duty: a consultation, March 2011 para 1.4

[7]     HM Treasury, Budget 2011 policy costings, March 2011 p41

[8]     HM Treasury, Reform of Air Passenger Duty: response to consultation, December 2011

[9]     Autumn Statement, Cm 8231 November 2011 para 2.31

[10]    The 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.

[11]    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

[12]    HC Deb 19 March 2014 c787; Budget 2014 HC 1104, March 2014 para 2.160-1

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

[14]    HC Deb 3 December 2014 c312. This was estimated to cost £45m in 2016/17, and £85m in 2017/18: Budget 2015, HC 1093, March 2015 (Table 2.2 – item c).

[15]    This was announced in the March 2015 Budget: HC 1093, March 2015 para 2.169

[16]    For details of the proposed changes to the Parliament’s tax powers see, Devolution of financial powers to the Scottish Parliament: recent developments, Commons Briefing Paper SN7077, 22 December 2015

[17]    see, Transport Committee, Smaller airports, HC 713 of 2014/15, 13 March 2015

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

[19]    HM Revenue & Customs, Customs Notice 550: Air passenger duty, February 2015 & Air Passenger Duty: statistical bulletin, September 2015.

Commons Briefing papers SN05094

Author: Antony Seely

Topics: Aviation, Taxation

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