Air passenger duty : recent debates & reform – Commons Library Standard Note (Updated 16 May 2014)
Air passenger duty (APD) is charged on all passenger flights from UK airports. The rate of tax varies according to passenger destination and the class of passenger travel. The tax is estimated to raise £2.8 billion in 2012/13.
Some commentators have argued that APD should be charged on planes rather than passengers, to provide better incentives for passengers and airlines to cut carbon emissions from aviation. In January 2008 the Labour Government launched a consultation on just such a change, but in November that year the then Chancellor Alistair Darling announced that instead of a per-plane duty, APD would be restructured: the tax would be based on four geographical bands set at intervals of 2,000 miles, so that travellers flying farther would pay a higher rate of duty. The new structure took effect from 1 November 2009, despite concerns about the impact of the new system for passengers making long-haul flights, particularly those making journeys to the Caribbean.
During the election campaign both the Conservatives and the Liberal Democrats argued for reforming APD, and in its first Budget on 22 June 2010 the new Coalition Government stated that it would “explore changes to the aviation tax system, including switching from a per-passenger to a per-plane duty.” In the 2011 Budget the Government announced that it would not proceed with a per-plane duty “given concerns over the legality and feasibility of this approach”. It published a consultation paper setting out options for simplifying the rate structure as well as proposals to extend the scope of the tax to flights on business jets to create “a simple tax system for air transport services in the UK, which does not hamper growth, which ensures a fair contribution toward the public finances from the sector and which is consistent with the Government’s determination to reduce emissions across all parts of the economy.” At this time the Government also said that while it was assumed that duty rates should go up each year in line with inflation, the rates of duty would be frozen for twelve months, with the increase for 2011/12 deferred until April 2012.
In December 2011 the Government published responses to a number of tax consultations with draft legislation for much of the Finance Bill 2012. In its response to the consultation on APD, the Government announced that it would proceed with extending the tax to business aviation, with effect from 1 April 2013, but that it would retain the current banding structure. The Government also confirmed that duty rates would rise in April 2012, fully reflecting the rise in inflation over the past two years. There has been a long-running campaign against APD lead by travel organisations and airlines, though to date the Government has opposed cutting tax rates or abolishing the tax on grounds of cost; rather, duty rates were increased in line with inflation for both 2013-14 and 2014-15. However in his 2014 Budget the Chancellor, George Osborne, announced that from April 2015 the 4-band structure of the tax would be replaced with 2-bands, with all long-haul flights charged the rate of tax. In addition the rate of tax on private jets would be substantially increased.