Memorandum submitted by the Heathrow association
for the control of aircraft noise
I am writing to you following the announcement
yesterday that the Federation of Tour Operators (FTO) has initiated
a challenge to the legality of the increase in air passenger duty
(APD), and to the legality of APD per se.
I have no views on the validity of the FTO's
arguments; or on their moral position in seeking to avoid a tax
that would mean an increase in other taxes (everyone can think
of reasons why they should not pay taxes, while wanting the benefits
of public spending). Rather, I wish to comment on the assumption
displayed in recent public discussions of APD that it is an environmental
tax, an assumption which the FTO and the aviation sector are seeking
to exploit.
APD was introduced in the early 1990s, at a
time when there was little concern about the impact of aviation
on the local or global environment. The then Chancellor of the
Exchequer, Kenneth Clarke, justified the new tax on the grounds
that he was widening the tax base by bringing in a sector of the
economy (aviation) that paid relatively little tax, due to its
exemptions from fuel duty and VAT. That is to say, APD was a surrogate
general tax, to be used for general revenue purposes, not an environmental
tax to be used for environmental purposes.
The value of the exemptions from fuel duty and
VAT has never been fully costed by the Treasury. But answers to
Parliamentary Questions suggest that at today's prices the fuel
duty exemption is worth £6 billion per year, with the VAT
exemption worth £3 billion per year. Since APD, even as recently
increased, would bring in only £2 billion per year, it can
be seen that aviation continues to enjoy a considerable cross-subsidy
from other tax payers.
It is not clear on what basis this cross-subsidy
is justified, other than historical accident. The industry claims
that it is a key component of the national economy, stimulating
employment in other sectors. But if such an economic dynamo cannot
pay its fare share of general revenue taxes, who else can? In
many areas the present Government has cut back on the welfare
state. But subsidised leisure flying is evidently safe. The people
who benefit are those with sufficient spare cash to afford the
full costs of leisure travel (hotels, etc). Needless to say, those
on tight budgets are not able to benefit from even the cheapest
air fares.
At no stage during the Parliamentary scrutiny
of APD during the 1990s was it suggested that APD was an environmental
tax, or that the proceeds from APD should be hypothecated for
specific environmental purposes. But the aviation industry, having
bitterly opposed APD from the start, began to claim that the revenue
met the environmental damage caused by aviation, about which increased
public comment is now being made. The present Government, which
stands in awe of the aviation sector, has also begun to justify
APD on environmental rather than general revenue grounds, but
without ever explaining this re-branding.
In summary, devising charges to offset the cost
of the environmental damage from aviation is unlikely to succeed
so long as the demand for casual leisure travel continues to be
stimulated by cross-subsidies from the general taxpayer (business
passengers pay much more than leisure passengers and leisure passengers
account for more than 75% of all international passengers at UK
airports). I am happy to provide chapter and verse on the foregoing
if this would be helpful.
February 2007
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