Get The Facts
Air Passenger Duty (APD) is the UK Government tax that is charged on all passengers departing from a UK airport. Some things you might not know about APD:
- Introduced in 1994, it was originally just £5 per person for short-haul flights, and £10 elsewhere.
- Successive governments have increased APD, so that passengers now pay up to £194 on long-haul flights.
- A typical family of four will pay an average of almost £120 each year in APD.
- PwC has published research which found that significantly reducing or abolishing APD would result in a significant increase in the UK’s Gross Domestic Product and would result in the creation of tens of thousands of new jobs. It also found that reducing or abolishing APD would actually increase the revenues to the Treasury from other taxes so much that it would pay for itself – increasing the money flowing into the Exchequer.
- Last year the Northern Ireland Assembly legislated to set devolved APD rates (Bands B to D) at £0 due to the damage caused to local businesses and jobs. Continental Airlines acknowledged that they would have abandoned flights from Belfast to the US if APD rates from Northern Ireland hadn’t been reduced.
- In April 2013 the Republic of Ireland scrapped its equivalent of APD entirely, leaving the UK as one of just five countries in Europe to levy a passenger departure tax.
APD plays an important role in raising tax receipts for the UK’s public finances, so isn’t it necessary at this continued time of fiscal austerity?
APD raised £2.9bn in 2013-14, however, the PwC research suggests that reducing or abolishing APD would pay for itself. In addition, cutting or abolishing APD would create sustainable jobs and encourage the development of businesses across all sectors in the UK, not just aviation and tourism.
Unlike other modes of public transport in the UK, aviation doesn’t have to pay fuel duty. Doesn’t this put aviation at a competitive advantage?
The aviation industry doesn’t enjoy the benefits that many other public modes of transport do, particularly in the form of subsidies. In 2012/13, for example, the rail industry was subsidised by over £5bn a year. What’s more, bus and coach companies’ subsidies amounted to £2.19bn in the same year. Bus operators also receive a range of other subsidies and grants that reduce their operational costs. If we look at the ferry industry, they are also exempt from fuel duty, but pay no passenger duty of any sort. APD simply adds to the cost of flying compared to other forms of transport.
You say that APD is bad for families, bad for jobs and bad for growth, and that’s why countries such as Holland and Denmark have scrapped their tax. Yet there are some other European countries that still levy their own air passenger taxes.
Only four other European countries levy a comparable tax (Austria, France, Germany, and Italy), none of which comes close to the cost of APD (although please note that PwC analysis includes Greece, Sweden and Belgium as countries who levy a departure tax – as their definition differs from ours). At the start of 2013 Germany froze its air passenger tax after the German federal Government published a study on the economic effects of the tax, concluding that two million passengers didn’t travel in 2011 due to the higher air fares. What’s more the Dutch, having introduce a higher air travel tax than the Germans in July 2008 (levied at between 11.25 Euros and 45 Euros) scrapped the tax after just one year after it was found that an estimated 1m Dutch passengers opted to fly from German airports instead, to avoid paying the Dutch levy.
Air travel is a contributor to the UK’s greenhouse gas emissions, so isn’t APD one way for the aviation industry to pay for its environmental footprint?
The industry is far from complacent about the environmental impact of aviation and is continually implementing ways to improve operational efficiencies and aircraft and engine technology to limit its carbon footprint. However, aviation’s contribution to global carbon emissions should be put in context. If we grounded every UK flight it would cut global man-made CO2 emissions by 0.1%. All UK domestic and international aviation accounts for around 6% of UK CO2 emissions compared to 31.1% from power stations and 21.6% from road transport. What’s more, APD is not an environmental tax – something the Government has now made clear. Indeed, our high APD rates have the effect that inevitably some people are incentivized into taking connecting flights via European airports such as Amsterdam’s Schiphol to avoid APD rather than fly direct – and this actually results in more emissions.
APD is payable only on departure from a UK airport and so the basic Band A rate of £13 is for a round trip to an overseas destination.
APD is however payable on both legs of a domestic round trip within the UK and the £13 figure is for economy flights only. Standard class flights are £26 per trip out of the UK. What’s more, we have estimated that a typical family will pay more than £120 in APD each year, with many paying considerably more.
Not only do airlines pay no VAT on fuel, they are exempt from VAT on everything they buy relating to the provision of air transport services. Mostly, VAT is not charged in the first place; aircraft and aviation fuel, for example, are zero rated. However, where VAT is charged, the airlines claim this back and in 2010/11, HMRC paid UK airlines a VAT rebate of £583 million (net).
While the UK does not levy VAT on domestic flights, international air travel from many other countries is generally VAT-exempt. Indeed, under EC law, all international passenger services from EU member countries are VAT-exempt. Bearing in mind that APD is imposed on all domestic flights and international flights leaving from a UK airport, it’s difficult to argue that not paying VAT on domestic flights alone compensates for current APD rates. For return flights within the UK, the tax has to be paid twice as the passenger “departs” twice.
Whilst it is true that passengers can end up paying £194 on some flights, this is the very top rate of APD and applies only to first class and business class passengers on long-haul flights to countries whose capital city is more than 6,000 miles from London.
This is incorrect. This top rate of ‘standard’ APD also applies to premium economy and other varieties of ticket where the passenger is given increased leg-room. A more accurate description of the standard rate would be anything other than the most basic economy class seat. Although, it is also worth pointing out that the planned reform of APD, which will take effect from April 2015 onwards will mean that the highest APD levied on a long-haul fare will be £142. We have welcomed this change, but would still like to see the Government go further, both in terms of reforming APD on long and short-haul flights.
Regarding the alleged negative impacts on the UK economy of the annual increases in APD, isn’t it better for UK resident to holiday domestically rather than going overseas, as it keeps the money in the UK?
A reduction in outbound tourism is not a benefit. Inbound and outbound tourism both benefit the UK. A reduction in any type of tourism harms the UK economy, and causes the country to miss out on its share of billions of pounds spent by foreign tourists yearly. This is highlighted by UK failures to capitalise on the increase in Chinese tourism post-London 2012. What’s more, research undertaken by ABTA – the Travel Association in 2013 found that the UK’s outbound sector directly accounts for 1.6% of UK GDP, with a total economic impact of 3.8% of GDP. It also creates 50 per cent more jobs than the real estate sector and more than two times as many jobs as in the energy and utility sectors combined, bringing in over £6 billion in taxes to HM Treasury.
Those in the aviation industry who are pressing the Government for APD to be reduced further should explain how they would propose to make up the revenue shortfall to the Exchequer. Should we sack some more policemen, teachers or nurses? Should we cut pensions or welfare benefits? Or should we raise VAT and/or extend its scope?
No. Firstly, the Government’s recent announcement that they plan to reform APD shows that they recognise the economic value of reducing APD. What’s more, the PwC report (using dynamic modelling) found that any APD cut would actually pay for itself, due to increased revenue generated by the economic growth stimulated by the APD reduction.