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Travel Industry Launches Legal Challenge To UK Air Passenger Tax

by Jason Gorringe,, London

28 February 2007

Under the banner of the Federation of Tour Operators (FTO), the UK's leading holiday companies have launched a legal challenge to the government's decision to impose a per head tax on airline passengers, known as the Air Passenger Duty (APD).

If the Judicial Review is successful it will mean the complete withdrawal of the tax, and leave the Government open to claims by airlines, and their customers, for the repayment of over GBP2 billion (US$3.9 billion) that has been collected since 2004.

Announced by Chancellor of the Exchequer, Gordon Brown in the 2006 pre-budget report last December, the increase in APD is intended to be an environmental tax. As a result, economy and first class flights from the UK to Europe now face an APD charge of GBP10 and GBP20 respectively, while long haul economy passengers now pay a duty of GBP40, and business travellers GBP80.

However, according to the FTO, there are two principal challenges to the legality of APD. First, as a signatory to the 1944 Chicago Convention on International Civil Aviation, incorporated into EC law in 2004, the FTO is arguing that the UK government is not entitled to impose duties or charges on aircraft solely for the right of transit over, or exit/entry from or into the UK from a fellow state. Under these rules, new charges are only permitted if they are cost-based in relation to the provision of a service, such as use of airports or air navigation services. The FTO has stated that the APD is not levied for any such service, and is simply a tax which raises revenue for general government spending.

"As a result APD is in contravention of Article 15 of the Chicago Convention, has been illegal under EC law at least since 2004 and should be withdrawn with immediate effect," the Federation commented in a statement.

The FTO also argues that there has been a breach of the Human Rights Act - and in particular Article 1 of the first protocol of the European Convention on Human Rights - in that the unsatisfactory manner in which APD has been introduced interferes with the legitimate property rights of tour operators, depriving them of income to which they are legitimately entitled.

The action has been triggered by the way that the doubling of APD has been introduced following the Chancellor’s announcement on 6 December 2006. The FTO argued that this has proved to be disproportionately unfair to tour operators which, unlike airlines, are largely precluded by law from passing on surcharges to customers who have already booked. The FTO also said that the industry tends to work on long lead times, and needs time to introduce changes, noting that when the tax was first introduced in November 1994, and for all subsequent increases, the industry was given 11-12 months in which to inform customers and update brochures. However, with the latest APD increase, the government allowed just seven weeks lead-in time before its introduction on 1 February 2007. This has resulted in a retrospective tax on the flights of the four million customers who had already booked their holidays that will have to be borne by tour operators, at a cost of some GBP50 million.

Commenting, Andrew Cooper, Director General of the Federation of Tour Operators stated:

"This substantial legal action has been launched with great reluctance. Tour operators absorbing GBP50 million of retrospective taxation however is simply not an option. APD - which since its introduction has raised some GBP12 billion – is a general tax, and not one which is used to support transport or environmental initiatives. It emphatically is not an effective environmental measure. Indeed as a tax levied on passenger numbers not aircraft, its effects are perverse in that it penalises environmentally friendly airlines with high load factors, and rewards those with half empty flights."

"In terms of climate change, our legal action on APD should not be misunderstood. We are acutely aware of the importance of aviation meeting its environmental responsibilities. This is not best achieved through passenger levies or new fuel taxes but, in place of these, through aviation joining the EU emissions trading scheme at the earliest opportunity and at the appropriate levels. In addition, the industry is already supporting a range of carbon offset schemes and is deeply engaged through our work on sustainable tourism with UK and overseas governments and NGOs as well as resorts, hotels and the aviation industry."

Cooper concluded:

"We will not allow any post-rationalised ‘greenwashed’ claims for APD to muddy the issue. Our legal action is being generated simply by the way in which the Government chose to introduce the new APD rates. It was unfair on tour operators and we will use all means to defend the sector from the entirely avoidable consequences."

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