It’s time to reform the tax on air passengers

Ten million pounds: in normal times, that is how much the government expects to collect each day from the chancellor’s favourite tax.

Almost every adult passenger boarding a plane at a British airport pays air passenger duty (APD), which can cost anything from £13 for an economy trip within the UK or into Europe to £180 for a long-haul flight in a posher seat.

From the Treasury’s perspective, APD is as close to perfect as any tax can get. Because it is built into the ticket price, many passengers are unaware of the contribution they are making to public funds – and half the people who pay it on international flights are homebound foreign visitors who don’t vote in the UK.

The £3.7bn it used to bring in represents £130 per household. And, for those of us unfortunate to be over 15 and under-qualified as flight crew, avoidance is difficult unless you choose not to fly (or, as I have done, take the train to Brussels or Paris and board a plane there).

Collecting the duty is a breeze: after the plane has taken off, airlines write out the appropriate cheque.

Yet from the points of view of the airlines, the environment and the passenger, APD is far from perfect.

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Airlines loathe costs they must pass on to the passenger, because the consequent higher fares dampen sales.

Beyond this obvious deterrent effect, travellers are not incentivised by APD to do the right thing environmentally, which is to choose flights on modern, efficient aircraft filled to the brim.

It is preposterous that a holidaymaker who wants a slightly more comfortable seat to Sharm el Sheikh should pay the same £180 tax as a business traveller flying first class to Sydney. The cost for flying to Egypt in premium economy is too high; for the Australia journey, too low.

So the news this week that APD is to be overhauled should be welcomed. But it has gradually become clear that the new version may be equally nonsensical. 

We know that there is no intention of reducing the tax “take”.

So while some passengers will pay less, others will pay more. Sir Peter Hendy, who is conducting the “Union Connectivity Review” on behalf of the government, hinted he will recommend cutting APD for domestic journeys that are “not realistic by rail”.

He has in mind links between Northern Ireland and Great Britain and between northern Scotland and southern England.

Cutting the tax for some specific hops while raising it for journeys such as London to Manchester, Newcastle, Edinburgh and Glasgow makes sense – especially as train connections to all these destinations should benefit from the HS2 rail project.

But the prime minister immediately made it clear he has other ideas, saying he wants to “cut air passenger duty to support connectivity across our Union”.

A blanket deduction, which Boris Johnson appears to favour, will simply incentivise travellers to switch from train to plane – at a time when the rail network desperately needs to lure back passengers.

Time to stop fighting the last war. The airline industry is never going to overturn this tax. Instead, airlines, airports and environmental groups should focus on persuading the government to make APD a tax that far more fairly reflects the impact of an individual’s journey.

The average APD take is £34 per journey. Most people pay less; a few much more. The distance bands that were previously used at least nodded in the right direction, but they were dismantled in a pre-election move to persuade people with family in the Indian subcontinent or the Caribbean to vote Conservative.

I am not calling for this arrangement to be brought back. Instead, how about airlines pay a tax based on distance and aircraft type, regardless of the payload of passengers. A simple example is that London-Barcelona hop: on an Airbus A320 with a solid 90 per cent load factor, a £2,200 tax tag corresponds exactly to the existing £13 per passenger.

The carrier will be able to factor the cost into its commercial calculations and effectively apportion the tax to passengers according to its own criteria. Airlines will be incentivised to operate as close to 100 per cent load factor as they can – so there are more passengers to split the cost between.

Marginal departures with a disproportionate per-passenger impact will be disincentivised.

There are plenty of possible arguments against: show me a carrier that does not currently try to maximise its load factor, or to make its operation as efficient as possible.

But the present system simply takes billions from both the traveller and the airline industry each year, without persuading us to fly better.