Aviation taxes or charges - the
scope for action
74. Although it may not be possible to tax fuel directly,
various other European states have introduced emissions charges
or other forms of tax, subject to some limitations. Switzerland,
for example, applies a carbon tax to domestic flights, while an
emissions charge has been introduced at Zurich airport. Sweden
has introduced an emissions charge, while Norway has replaced
its passenger levy by a National Aviation Green Tax. levied on
75. In addition, many EU member states charge VAT
on domestic air faresincluding Germany (16% rate of VAT),
the Netherlands (19%), Spain (6%), and France (5.5%). Germany
is considering extending VAT to cover international flights insofar
as they relate to its domestic airspace.
We also note that in March 2003 the EC agreed the "Community
Framework for the Taxation of Energy Products" which specifically
allows member states to tax aviation fuel for national use.
76. Various organisations have pointed out that the
existing UK tax on aviationAir Passenger Dutyis
levied at too low a rate and is in any case a poorly designed
environmental tax. There is scope for the Government to introduce
more effective forms of tax or charge on a domestic basis. This
is particularly the case for domestic UK flights, where there
is a need to promote a modal shift to rail in order to address
the particularly damaging environmental effects of short-haul
flights which the RCEP identified. While we accept that domestic
measures can only have limited effect, they are worth exploring.
They would also demonstrate the commitment of the UK to addressing
these issues at an international level.
77. We recommend that the Government replaces
the current Air Passenger Duty with an emissions charge levied
on flights and which is clearly displayed on travel documentation.
This should be set initially at a level which will raise £1.5
billion a year, but be subject to an annual escalator so that
revenue will increase over time. In addition, it should consider
the case for introducing VAT on ticket sales for domestic flights
within the UK and set out the results in the next Pre-Budget Report.
78. Such measures, however, will be insufficient
to ensure that aviation is subject to environmental limits. In
order to achieve this, there would need to be agreement at an
international level, or at least within the EU, to a common system
of environmental charges or taxes. The aviation industry supports
the development of an open emissions trading scheme, either to
be incorporated within the planned EU scheme or else in the context
of the second Kyoto commitment period from 2010. It also argues
that pressure to introduce taxes or charges as an "interim"
solution should be resisted.
79. However, in the view of many, it is unlikely
that aviation could be incorporated within an international trading
scheme before 2012 at the earliest. Environmentalists are also
highly sceptical of the commitment of the International Civil
Aviation Organisation (ICAO) and its sub-committee, the Committee
on Aviation and Environmental Protection, to pursue such an agenda.
The progress it is making is very slow and there is little likelihood
that it will achieve the necessary consensus. In the light of
this, the EU has announced that it will take action itself if
ICAO does not do so. It is carrying out further work in this area,
and both the EU Commission and Parliament appears to be broadly
supportive of the concept of an emissions charge as an interim
measure. This stance has been reinforced by the EU White Paper
"European Transport Policy for 2010".
80. While it is only anecdotal evidence, one of our
memoranda paints a rather dismal picture of Government commitment
at an EU level. The Stop Stansted Expansion memorandum includes
"As an example of [the lack of UK commitment],
we recently met with the DfT UKREP in Brussels, principally to
make enquiries about progress within the EU on the taxation of
various aspects of air travel. Instead of a progress report we
received a long explanation of the reasons why it was either 'all
too difficult' or 'inappropriate' to tax aviation fuel or other
aspects of air travel. After we pointed out that the Government
was committed to such policies we were told that there was 'little
likelihood of progress in the short to medium term'; that it was
'not high on the list of priorities'; and that there was 'no Ministerial
will' to pursue such policies with any vigour."
81. Evidence suggests that there is little ministerial
will to pursue within the EU fiscal policies to address the impacts
of aviation. With regard to the introduction of duty on aviation
fuel or alternatively an emissions charge or trading system, the
Government should take a leadership role within the EU and the
International Civil Aviation Organisation and commit itself to
bring forward specific proposals in the next two years. It should
also state whether it favours the introduction of an emissions
charge at an EU level as an interim measure pending the inclusion
of aviation in international trading schemes.
82. If fiscal policies are introduced to address
emissions from aviation, the price of carbon might turn out to
be very much higher than expected. The Government should also
give its assurance that it will not bail out the aviation industry
ifafter investing lots of money in extra runway capacityit
turns out that they are left with stranded assets if demand is
less than projected.
83. There is another area where the Government needs
to ensure that aviation pays for all its costs. A number of memoranda
pointed out that the use of runways and associated facilities
by airlines was heavily subsidised through the 'single till' arrangements
and the absence of any slot auctioning.
84. BAA's revenue is derived from two main sourcesairport
landing charges, and retail operations within the airports it
owns. Currently, the "single-till" arrangements caps
total revenue from airport charges and retail sales combined according
to an RPI-X formula. The more money BAA earns from retail operations,
the lower the landing and take-off charges will be. It is astonishing,
for example, that these charges are lower at Heathrow than they
are at Prestwick. Under a 'dual till' approach, new take-off and
landing charges could be set according to aircraft size and other
factors affecting their environmental impacts.
85. Airlines also do not pay for access to landing
and take-off slots. Slot access is determined under EU rules
based on the extent of use in previous years. We support the recent
proposal by the IPPR for 20% of slots to be auctioned each year
on a five year rota, though this will require a change in the
EU directive governing slot access.
86. At present, landing charges are too low to have
any real impact on airlines. The Government should re-examine
the scope for introducing a dual-till system to ensure that airlines
pay a greater share of the infrastructure costs. It should also
work within the EU to enable slots to be auctioned on a regular
basis so that demand is reflected in the price.
62 Ev12, 30. Back
Ev5, Q31. Back
The Sky's the Limit, IPPR 200, page 64. Back
Ev Ev12. Back
74 Ibid. Back
eg. Ev131. Cf The Sky's the Limit, IPPR 2003. Back
The Sky's the Limit, IPPR 2003. Back