APD (air passenger duty) is 20 years old in April, 2014. The much-disliked aviation tax now earns the government an estimated £2.8 billion every year with little effort.
APD could not exist in its current form were it not for the fact that the UK mainland is an island. If it were geographically linked to another country, the government would be forced to either cancel the tax or substantially reduce it in scope.
Why is it so unpopular? First, it has risen hugely in price over the past two decades. A long-distance traveller who would have paid £10 in 1994 pays as much as £188 now. That will rise further to a maximum of £194 in April.
Second, unlike many other aviation-related taxes around the world, not a penny is ploughed back into UK air travel infrastructure. Every bit goes straight to the Treasury’s coffers.
Why was it introduced in the first place? Kenneth Clarke, then chancellor of the exchequer, announced the introduction of APD in his budget statement of November 1993.
John Stewart, chair of campaign body HACAN Clear Skies, says: “The reason for APD at that time wasn’t to manage demand but to ensure aviation paid its fair share of taxation.
“By 2007, the government was framing APD as a response to rising aircraft emissions. But more recently, the government has seen it as a substitute for tax on fuel and VAT.
“Ministers find it easier to impose APD than enter into prolonged international negotiations to get agreement on aviation fuel to be taxed or a VAT-type tax to be imposed on international flights.”
So what is wrong with APD, besides the cost to the consumer? It is distorting the way we travel, and not always for the good. In particular, domestic aviation is disadvantaged because, unlike international flights, APD is charged twice, not once. It means the amount of APD alone can equate to the cost of a standard class rail Advance ticket.
Regional domestic flights have been hit more than those plying trunk routes. Quoted in The Telegraph in December, Saad Hammad, chief executive of Flybe, said: “If the government is serious about the economic regeneration of the regions then it must do something about regional air service. Our economic revival cannot depend solely on London and the south-east.”
Regional links (those that bypass London) are important, believes Flybe. They are faster and more punctual by air than by rail, and road links are not always easy.
APD has also led to business people wasting time and temper by obliging them to book circuitous routings to circumvent the highest tax rates.
John Grant, executive vice-president of aviation information provider OAG, says: “To avoid APD [at its highest rates – all air passengers must pay APD but the short-haul rates are much cheaper], long-haul travellers are heading for a continental hub and recommencing their trip back through the UK [APD is not payable by transit passengers].”
He adds: “While it is difficult to track the journey patterns of individual travellers using different European hubs [because of] the ticketing and booking processes, it is widely acknowledged that small to medium-sized businesses are having to use this method to make their trips financially viable.”
Much will depend on the class of travel, routing and airline, but besides saving on the top rate of APD, travellers may find that tickets cost less in mainland Europe in the first place. This means UK aviation is the loser, because the traveller might opt for a foreign airline when flying direct (from a foreign hub), or British Airways might earn less revenue because some BA premium tickets cost less to buy overseas than in the UK.
To avoid APD completely, travellers must head overland. Many take the Eurostar via the Tunnel. Savvy overseas tourists (those visiting Europe from farther afield) arrange to make the UK their first port of call – APD is payable only on departure, not arrival – then return home from mainland Europe. It is no coincidence, I would suggest, that Eurostar claims travellers visiting the UK from China, North America, Australia and Brazil are becoming a more important part of its passenger mix.
Others take the ferry. Back in 2011, Stena Line was expecting to carry 20,000 Indian passengers on its popular Harwich-Hook of Holland service. Stena Line says: “Indian tourists who traditionally travel around Europe are deliberately planning their itineraries to avoid flying back to India from the UK.” The sales manager of one Asian airline told Business Traveller that his tourist groups fly into London and then continue to mainland Europe by coach before heading home.
Thousands of travellers in Northern Ireland shun Belfast, meanwhile. They drive or take the train to Dublin for their long-haul flights. The Irish government currently charges a flat e3 for airport departure tax. That miniscule sum will be scrapped altogether in April.
To stem the flow of long-distance traffic losses, the Northern Irish government abolished APD for direct long-haul flights last year. Passengers departing Belfast and flying long-haul via another hub airport must pay standard APD.
However, Belfast only handles direct transatlantic flights – it has no long-haul flights heading East. It’s no wonder that Gulf carriers have seen such enormous passenger growth out of Dublin to the Middle East and beyond. Air traffic from Dublin to the Middle East increased by 13 per cent in 2013, and Emirates plans to double its service to the capital later this year.
Is there any chance that our government’s stance on APD is softening? None at all. It is the easiest of taxes to collect and is a useful earner now that fuel duty has been frozen.
In the final analysis, says Stewart, “I suspect the battle [for and against APD] will go on for another 20 years.”
How APD has risen… and risen
APD started life as a simple two-tier tax – £5 for flights to an EU destination (including UK domestic) and £10 for flights to non-EU destinations.
There were exceptions – Norway was classified as an “EU destination” on account of its trading status. Likewise, the Swiss cities of Basel and Geneva were covered by the lower EU rate because their airports occupied EU territory.
In the early years, price increases were modest. No doubt the government was not so desperate for cash. But since tax receipts became depressed as a consequence of the economic downturn, the government has well and truly hiked the rates we pay.
APD is now levied across different price bands. Long-haul passengers, especially those booked in the premium cabins (including premium economy), are the losers as they pay roughly twice the rate of those booked in economy class.
Between November 2009 and April 2013, APD for a short flight rose from £11 to £13 in economy and from £22 to £26 in business class. But for a really long flight to, say, South East Asia or Australia, it has risen from £55 to £94 and from £110 to £188 respectively. Rates for destinations in the Middle East, Africa and North America fall between the above. And APD (excluding short flights) will increase again in April.
