Air passenger duty (APD) is charged on all passenger flights from UK airports. The rate of duty varies according to passenger destination and the class of passenger travel.[1] APD is estimated to raise £3.7 billion in 2018/19.[2]
The tax was introduced in the November 1993 Budget and came into effect on 1 November 1994. Initially APD was charged at the rate of £5 on flights within the UK and to other countries in the European Economic Area (EEA), and £10 on flights elsewhere. These rates were increased to £10 and £20 respectively from 1 November 1997.
The structure of the tax was reformed in April 2001, with a lower rate of duty for economy fares. Initially economy fares were charged duty at £5 for flights within the EEA and £20 to other countries. First class and club class flights were charged £10 for EEA flights and £40 for flights elsewhere.[3] Duty rates remained frozen for over five years, despite concerns about the environmental impact of aviation, though in December 2006, the then Chancellor, Gordon Brown, announced that all duty rates would be doubled from 1 February 2007.[4]
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. There would be two rates of duty within each band: a standard rate, and a reduced rate to apply to the lowest class of travel.[5] 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. This note discusses these developments; a companion note discusses the introduction of APD and the first years of its operation.[6]
During the 2010 General Election campaign both the Conservatives and the Liberal Democrats argued for reforming APD. In its first Budget in 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.”[7] In the 2011 Budget the Government stated it would not proceed with a per-plane duty “given concerns over the legality and feasibility of this approach”[8] but it would consult on options for simplifying the rate structure as well as proposals to extend the scope of the tax to flights on business jets.[9] In December 2011 the Government confirmed that a new higher rate of duty would apply to business flights from 1 April 2013, but the 4-band structure would be retained.[10] Over this period travel organisations and airlines campaigned consistently for APD to be scrapped, though Ministers opposed cutting duty rates or abolishing the tax on grounds of cost.[11]
In his 2014 Budget the then Chancellor, George Osborne, announced that from April 2015 the 4-band structure of the tax would be replaced with 2-bands: Band A for short haul flights, and Band B for all long-haul flights. Mr Osborne also proposed that the higher rates of duty for flights on private jets would be substantially increased.[12] This reform was estimated to cost £215m in 2015/16, rising to £250m by 2018/19.[13] Subsequently in his Autumn Statement that year the Chancellor announced that APD on economy flights would be scrapped for children in two stages: first, from 1 May 2015 for children under 12, and then from 1 March 2016 for children under 16.[14] No further changes have been made to the structure of APD since then. These later developments are examined in a third briefing paper.[15]
Notes:
[1] HM Revenue & Customs, Rates for air passenger duty: guidance, May 2018
[2] Office for Budget Responsibility, Economic and Fiscal Outlook, Cm 9713, October 2018 (Table 4.6)
[3] HC Deb 21 March 2000 c869; HM Customs & Excise Budget press notice C&E4, 21 March 2000.
[4] HC Deb 6 December 2006 c310
[5] HC Deb 24 November 2008 c499; HMT Pre-Budget Report press notice PBR08/2, 24 November 2008
[6] Air passenger duty: introduction, Commons Briefing paper CBP413, 14 February 2019
[7] Budget 2010 HC 61, June 2010 p36
[8] Budget 2011 HC 836, March 2011 para 1.152-3
[9] HM Treasury, Reform of Air Passenger Duty: a consultation, March 2011 para 1.4
[10] HM Treasury, Reform of Air Passenger Duty: response to consultation, December 2011
[11] For example, see comments by Treasury Minister David Gauke in an Opposition day debate on APD in October 2013 (HC Deb 23 October 2013 c403).
[12] HC Deb 19 March 2014 c787; Budget 2014, HC1104, March 2014 para 2.160-1
[13] Budget 2014, HC1104, March 2014 p57 (Table 2.1 – item 36).
[14] HC Deb 3 December 2014 c312. This was estimated to cost £45m in 2016/17, and £85m in 2017/18: Budget 2015, HC1093, March 2015 (Table 2.2 – item c).
[15] Air passenger duty: recent debates and reform, Commons Briefing paper CBP5094, 14 February 2019