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Air passenger duty and regional airports

Published Tuesday, August 21, 2018

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.

Air passenger duty (APD) is charged on all passenger flights from UK airports.  The rate of duty varies according to passenger destination and the class of passenger travel.  APD is estimated to raise £3.5 billion in 2018/19.[1] 

In recent years travel organisations and airlines have campaigned consistently for APD to be scrapped, though Ministers have opposed cutting duty rates or abolishing the tax on grounds of cost.[2] The last major reform to the tax was announced by the then Chancellor George Osborne in his 2014 Budget. Since April 2015 the rates of APD have been charged by reference to 2 bands: Band A for short haul flights, and Band B for all long haul flights. Mr Osborne also announced that the higher rates of duty for flights on private jets would be substantially increased.[3] 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.[4] No further changes have been made to the structure of APD since then.

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.[5] Citing analysis by HM Revenue & Customs, published in October 20102,[6] the Government took the view that it was unlikely that a new rate structure would be of significant help.[7]

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.[8] Second, in September 2014, the cross-party Smith Commission recommended the devolution of APD to the Scottish Parliament, and provision to do this was made by the Scotland Act 2016. Initially it was anticipated that APD would be devolved from April 2018. Over 2016 the Scottish Government consulted on the design of a replacement Scottish Air Departure Tax and confirmed plans to cut this tax by 50% by the end of the next Scottish Parliament, and abolish it completely when resources allowed.[9] However, in October 2017 the Scottish Government announced it would postpone this reform, and to date there is no fixed date for the introduction of the new tax.[10] Third, 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,[11] although in September 2016 the Government confirmed it would not take this forward, on the grounds that it would create undue market distortions.[12]

Over this period regional airports in England have expressed concerns that lower APD rates in Scotland or Wales would put them at a significant competitive disadvantage[13], and in February 2015 the Chancellor announced that the Government would review potential options to support regional airports affected by devolution.[14] 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.[15] However, any of these options would have to comply with EU rules on aviation, State aid and tax devolution. Following the outcome of the EU referendum, in November 2016 the Government confirmed that it would not take specific measures at this point, but would “review this area again after the UK has exited from the EU.”[16]

Further to this, in the Autumn 2017 Budget the Government announced that it would “publish a call for evidence which will consider the impact of VAT and air passenger duty (APD) on tourism in Northern Ireland, to report at Budget 2018.”[17] In 2014 the Irish Government abolished Ireland’s version of APD – the ‘Air Travel Tax’ – and there have been concerns that the tourist industry in Northern Ireland has been particularly affected by this, and by the lower 9% VAT rate in Ireland which applies to a number of tourism related goods and services.[18]  This consultation exercise was launched on 13 March, and the deadline for responses was 5 June; this notes that responses to the consultation “will inform future policy development but the government has made no firm decisions about the issues set out in this document.”[19]  The Government has confirmed that it will “report at the next Budget on the outcome of this Call for Evidence.”[20]

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

The wider policy issues affecting airports in the UK, outside London and the South East of England, are examined in, Regional airports, Commons Briefing paper CBP323, 26 April 2016.

Notes : 

[1]    Office of Budget Responsibility, Economic and fiscal outlook Cm 9572, March 2018 (Table 4.6)

[2]    For example, see comments by Treasury Minister David Gauke in an Opposition day debate on APD in October 2013 (HC Deb 23 October 2013 c403).

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

[4]    HC Deb 3 December 2014 c312

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

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

[7]    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.

[8]    Under the Air Passenger Duty (Setting of Rate) Act (Northern Ireland) 2012.

[9]    Scottish Government, Programme for Government 2015/16, September 2015 (section 3)

[10]   Revenue Scotland, Air departure tax FAQs, June 2018

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

[12]   See comments made by the Minister, Guto Bebb, at the report stage of the Wales Bill on 12 September 2016 (HC Deb cc692-3).

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

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

[15]   HM Treasury, Discussion paper on options for supporting English regional airports from the impacts of air passenger duty devolution, July 2015. The issue was the subject of a Westminster Hall debate later that year (HC Deb 20 October 2015 cc297-320WH).

[16]   Autumn Statement, Cm 9362, November 2016 para 4.37  A summary of responses to the discussion paper were published at this time.

[17]   Autumn Budget 2017, HC 587, November 2017 para 4.89

[18]   see, Northern Ireland Affairs Committee, Promoting the tourism industry in Northern Ireland through the tax system, HC 50, 20 March 2018

[19]   HMT, VAT, Air Passenger Duty and tourism in Northern Ireland: call for evidence, March 2018 para 1.8. see also, PQ136109, 23 April 2018.

[20]   PQ155201, 25 June 2018

Commons Briefing papers CBP-7333

Author: Antony Seely

Topics: Aviation, Taxation

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