APD Hike Another Blow For UK Competitiveness

by Amanda Banks, Tax-News.com, London

02 November 2010

Denouncing the hike in Air Passenger Duty that has occurred as of November 1, the Confederation of British Industry has urged the government to find methods of supporting the aviation industry rather than ‘damaging its competitiveness’.

Rebuking government policy, the CBI noted that the United Kingdom is one of only a handful of countries that imposes a specific tax on its aviation sector, other than on airlines' profits and fuel. Holland and Belgium abandoned similar proposals to an APD recently, citing potential damage to the competitiveness of their industries.

Since 2007, APD has increased by 213% for long haul flights departing from UK airports, and with the tax now at an unprecedented level, the CBI has warned that the UK runs a risk of losing aviation business to other European hubs such as Amsterdam's Schiphol.

Commenting on behalf of the CBI, the Director for Business Environment, Neil Bentley, said:

"The big rise in air passenger duty coming into force [on November 1] is to hit tourists and business travellers alike, with some facing a 55% increase in tax on the price of their ticket. This could discourage foreign visitors coming to the UK as the tax affects them when they leave the country, hitting British tourism and trade.”

Upon its inception, on November 1, 1994, APD was charged at a rate of just GBP5 on flights within the UK and other European Economic Area countries, and GBP10 on flights elsewhere. The tax was then doubled in 1997.

In April 2001, economy flights within the EEA were once again subject to a GBP5 levy, while the GBP20 rate on flights outside the EEA remained. However, duty on 'premium' fares was hiked to double that levied on economy seats.

Having decided against a per-plane duty in 2008, the previous, Labour party government decided to put into motion a series of hikes in APD, the first of which occurred on November 1, 2009. A four-tier system was also introduced, based on mileage.

As a result of the latest November 1, 2010, hike, passengers now pay anything from GBP85 in tax for economy ‘band D’ long-haul flights to GBP170 for ‘band D’ premium. In 2009/10 the government raised GBP1.9bn from the tax and the yield from this tax will rise to GBP3.5bn by 2014-15.

The coalition government has announced, however, that it is reconsidering proposals for a per-plane tax, in part to ensure that private aviation is taxed based on individuals’ carbon footprint, which is expected to make less densely populated flights significantly more expensive.

In the meantime, the CBI has urged the government “to consider what impact such taxes will have on the aviation industry’s competitiveness in what is a truly global market. The increase comes at the end of a tough year for the aviation sector in which it has faced the volcanic ash cloud closing European airspace for several weeks, and the global recession in which UK air passenger levels dropped by 7%."

Recommended