Cheapflights has reviewed the Chancellor’s Pre Budget Review proposals on the taxation of the UK aviation industry.
In view of the broad nature of the proposals announced by the Government, it is only possible to make general comments until a consultation process is undertaken. However, there are a number of fundamental issues which the Government must consider when introducing the new UK aviation industry taxation regime.
The planned change on 1 November 2009 from the current Air Passenger Duty (APD), paid for by passengers, to a tax on both passenger, and now freight aircraft flights as well, will mean that passengers will still pay - albeit indirectly as operators seek to meet the cost of taxation. Importantly, there could also be a significant ‘downstream’ negative knock-on effect on the UK’s air-travel, tourism and aviation support industries. These depend on the continued financial health of aviation in the UK and employ hundreds of thousands of workers . It could also potentially affect London’s status as a global financial centre by making it less attractive to visit or to have operations based in London.
Whilst APD is now being presented as a “Green” tax, it was originally introduced by a Conservative Government to raise revenue in the 1990’s. Current APD revenues are in the region of £2 billion per annum . When the new tax regime comes into force the Government hopes to raise a further £0.5 billion per annum by including freight flights and private jets which until now have not been subject to any direct taxation2. Ultimately though, the effect will be that costs will inevitably be passed down to consumers.
To meet mounting concerns about climate change, the Government has recently begun to represent APD as a “Green” tax to deter growth in flying in the UK. However, it has not been able to demonstrate that the revenues have been applied to offsetting UK aviation’s global warming emissions footprint. Had they been so, UK aviation’s global carbon footprint would be offset many times and would already offset the projected emissions increase caused by the expected growth of the industry. To put the UK aviation’s current global CO2 footprint in context, it is estimated that UK aviation only contributes 0.1% of global carbon emissions.
In Cheapflights’ view, it is therefore regrettable that the Government is taxing the UK aviation industry directly and not applying the revenues to offsetting the industry’s carbon footprint. Taxation rather than incentives will have the effect of delaying the introduction of cleaner UK aircraft and operating procedures.
UK aviation is more than aware of the need to tackle global warming and is committed through the Sustainable Aviation initiative to do so. This has clear environmental targets and the industry is carrying out research into technologies that will improve aircraft efficiency and operations to meet these targets. Past research has lead to advances in technology which have enabled today’s aircraft to travel more than three times as far as they did 40 years ago on the same amount of fuel . One current new example of the power of technology is Boeing’s new long-haul 787 ‘Dreamliner’ which uses 20% less fuel than its predecessors .
A further concern regarding the Chancellor’s proposal is that commercial aviation is a global industry and foreign carriers can choose not to utilise UK airports as hubs into Europe. There is therefore a danger that a tax on aircraft, with an emphasis on increased taxes for long-haul flights, may persuade international airlines to change their European long-haul hubs from the UK to alternative airports such as Schiphol. This in turn could encourage an increase in short-haul flights from the UK to European competitor airports to connect with long-haul flights. Not only would this aggravate European air-traffic control problems (already wasting 350,000 flying hours a year due to congestion ) but also increase the negative environmental effects associated with an increase in short-haul take-off and landings in the UK. The CO2 emissions from aircraft landing and take-off are the same irrespective of journey distance however the emissions per passenger km for shorter aircraft trips become commensurately higher.
In summary, whilst welcoming initiatives which genuinely assist in protecting the environment, Cheapflights believes the Chancellor’s proposals are ill-thought through and are potentially unworkable. Furthermore, they could prove to be both damaging to the UK economy and to the UK environment. As one of the biggest referrers of business to UK aviation, Cheapflights will seek to play a full role in any consultation process.