Replacing APD

Sure, there\’s problems in the details, but the basic idea here seems very good indeed.

Easyjet will tomorrow break ranks with the rest of Britain\’s airlines and come out in support of the Government\’s replacement for Air Passenger Duty (APD).

The low-fare carrier will urge the Government to ignore protests from interests as diverse as British Airways, the US Government and cargo airlines and push ahead with plans to replace the current tax on passengers with one on aircraft.

What we really want to tax (yes, yes, assuming this climate change thing has anything about it at all) is emissions. In a perfect world this would mean taxing the fuel and leaving it at that, however there\’s perverse incentives here: for airlines to fill up abroad and not in hte UK. That flying around with extra fuel would increase emissions over all, which ain\’t the point at all.

Thus we need to tax some proxy. The plane flight itself (with adjustments for type of plane and distance flown) is a better proxy than the passengers themselves.

BA is lobbying for an exemption for transfer passengers, which make up 34 per cent of all flights coming through Heathrow, arguing that the proposed replacement for APD will make UK airlines uncompetitive.

Meanwhile, cargo airlines, which currently pay no APD, argue that the new tax will reduce demand for UK exports, particularly hi-tech goods, which are highly sensitive to pricing differentials.

Easyjet will argue, however, that transfer passengers, cargo carriers and long-haul operators should all pay, while those operating older aircraft should pay more – a particularly antagonistic stance towards US carriers, which generally operate older fleet.

While Easyjet can be accused of talking their own book (they\’ve got a young and efficient fleet, fill more spaces on their planes etc) they are in fact correct. The emissions from transfer passengers, from cargo, are exactly the same as any other emissions and there\’s no reason why they shouldn\’t be taxed.

The basic idea is really very simple. Tax negative externalities at their social cost and then stand back and let the market sort it all out.


5 thoughts on “Replacing APD”

  1. “The plane flight itself (with adjustments for type of plane and distance flown) is a better proxy than the passengers themselves.”

    Nah. It’s take-off/landing slots that ought to be taxed. Doesn’t really matter how far they fly.

  2. The proposed APD replacement is flawed on many fronts.

    1) The tax will be levied on distance flown on the first flight so a passenger flying KLM to Amsterdam and connecting to Singapore will pay less than a passenger flying directly to Singapore. Thus it disadvantages UK airlines, it may also be illegal as it could be construed that tax is being levied for the duration of the flight and therefore in overseas sovereign territories
    2) The tax will be paid by cargo flights for the first time; the Airline will pass the tax on to customers loading freight from the UK. This means that it is effectively a tax on exports. Cargo unlike passengers only fly’s one way so it will never be levied on imports
    3) The existing APD is levied on the passenger so it is easy for the airline to pass on to the customer, the new tax will be levied on the aircraft with larger aircraft paying more tax. It will be impossible for the airline to transparently pass on the tax to the passenger; aircraft are seldom full so it is likely that they will divide the tax over a historically estimated average passenger load. Anything above this load factor and the airlines will still have the tax from the passenger but it will go directly to the airlines profits and not the Government.
    4) Given point 3) above each airline will actually charge the passenger a different amount of tax further clouding an already complicated airline charging structure.
    5) The Government stated that it was going to charge General aviation flights so that the corporate jets and others had to pay for the first time. At an early stage the government realised that this was not feasible and in its consultation document it quietly set a minimum aircraft weight below which an aircraft would be tax exempt, this weight excludes almost all general Aviation aircraft from the tax.
    6) Finally (although I could go on) the Government has indicated that it wants to raise 500 million pounds more with this tax that the tax it is replacing, It’s a money grab and it all comes back to the fact that politicians of all parties and the Civil servants think they know how to spend our money better than we do

  3. And another thing …..

    the Government plan to levy the tax on an aircraft weight so an old highly polluting lighter aircraft will pay less than a newer heavier but less polluting aircraft, there is a perfectly legal way for an airline to vary the weight of the aircraft on paper only which means that they can pay less tax one day than the next with the same aircraft.

    The idea is so bad even the government now think it’s a bad idea

  4. Why can’t we just agree that the world is now cooling, and that its temperature has been at best static for the last decade or so, despite steadily increasing CO2 in the atmosphere, which disproves the whole hypothesis, therefore we don’t need to do anything.

    Well, why not? Those are the facts, aren’t they?

  5. 1) you don’t know much about tax law, do you?

    2) fair point, but hard to do much about

    3) So airlines have an incentive to improve their efficiency over historical levels? Excellent

    4) no, they’ll charge each customer £xx as an approximate average fee, without worrying about different loading factors

    5) that’s a shame, why did they drop it?

    6) is that based on widening the scope (to freight etc)? if so it doesn’t seem like a problem

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