Memorandum submitted by Virgin Atlantic
INTRODUCTION
Virgin Atlantic welcomes the opportunity to
submit evidence to the Environmental Audit Committee for the purpose
of their inquiry into the 2008 Pre-Budget Report.
Virgin Atlantic is mainly concerned with the
changes to Air Passenger Duty announced in the Pre-Budget Report
and have therefore focused our response on this area only.
SUMMARY
Whilst we are pleased that the Government made
the right decision to retain APD, many of the proposals regarding
its reform contradict the Government's wider environmental policy:
— APD fails to incentivise alternative
modes of transport for short-haul journeys.
— APD penalises long-haul flights,
despite there being no viable alternative mode of travel for passengers.
— The Government's new banding system
is discriminatory against Caribbean countries, which are heavily
reliant on the tourism industry.
— Premium Economy passengers will have
to pay the same level of APD as First/Business Class passengers.
— Tax hikes will further harm the UK
airline industry in what are already very challenging times.
— APD should be withdrawn as soon as
aviation becomes part of the EU Emissions Trading Scheme in 2012.
Air Passenger Duty fails to incentivise alternative
modes of transport for short haul journeys
1. There is widespread agreement that for
short-haul journeys encouragement should be given to using rail
services as far as possible. Yet under the new APD scheme, the
tax for shorter journeys (Band A) will, by 2010-11, increase by
up to £4 per passenger, or 20%, while long-haul journeys
(Band D) will increase by 112%. This will add an additional £90
to the price of a long-haul ticket.
APD penalises long-haul flights, despite there
being no viable alternative mode of travel for passengers
2. The smallest increases in APD will be
applied to routes where in many cases there are viable surface
alternatives and the largest increases will be applied where no
such alternatives exist. The relative levels of APD bear little
relationship to the environmental impact of air services or the
logic of the Government's overall transport policy.
The Government's new banding system is discriminatory
against the Caribbean
3. The banding system has been based on
the distance from London to the capital cities of individual countries.
Therefore, the whole of the United States, from Boston to Los
Angeles and even Hawaii, falls within Band B. However, all Caribbean
countries fall within Band C. This has a number of effects. It
means that a passenger travelling to Barbados will pay significantly
more in tax than someone travelling to San Francisco, which from
an environmental perspective makes no sense. It also means that
destinations such as the Caribbean Islands will be at a marked
disadvantage in attracting tourists compared with US destinations
such as Florida. Such an outcome would appear to go against the
Government's own drive to encourage the development of tourism
in the Caribbean.
4. We would strongly recommend that the
Government look again at the banding system in order to remove
the anomalies outlined above.
Premium Economy passengers will have to pay the
same level of APD as First/Business Class passengers
5. For some time, Virgin Atlantic has been
calling on the Treasury to remove the so-called "Premium
Economy" anomaly. It has been widely accepted that it is
disproportionate to tax Premium Economy seats at the same level
as First and Business Class seats. The unfairness of the excessively
heavy taxation of Premium Economy passengers is all too evident.
There are only modest product differentiators from economy class.
Virgin Atlantic's Premium Economy and similar `intermediate' products
offered by other airlines are an extension of the product found
in the economy cabin rather than a slimmed down version of business
class. It would be far more logical for the higher level of APD
to apply to First/Business class passengers, and for the lower
level to apply to Premium Economy/Economy passengers. At present
APD accounts for an excessive proportion of the Premium Economy
fare.
Tax hikes will further harm the UK airline industry
in what are already very challenging times for the industry
6. No one can deny that aviation is facing
one of its toughest challenges yet. As with the wider economy,
aviation is feeling the effects of the global economic downturn.
This year airlines have grappled with record fuel prices, only
to be hit head on by weakening consumer demand as a result of
the wider economic woes felt around the world.
7. Therefore, it is very disappointing that
at a time when the airlines face severe financial difficulties
the Government has decided to increase taxation on aviation substantially.
Not only does the amount to be raised by APD far exceed the environmental
costs of aviation, it is also much higher than taxes applied to
the industry by any other country. We would refer the Committee
to the comments made by Ruth Kelly in her capacity of Secretary
of State for Transport:
8. "Since APD was doubled, (in January
2008) aviation will meet its climate change costs, taking account
not just of carbon dioxide emissions, but of the other aviation
greenhouse effects such as NOx emissions and contrails".[1]
9. Aviation has long been a UK success story.
It is something we are good at. We would urge the Government not
to penalise the airline industry to an extent that no other country
would contemplate.
APD should be withdrawn as soon as aviation becomes
part of the EU Emissions Trading Scheme in 2012
10. Virgin Atlantic has been a strong supporter
of the inclusion of aviation in a European Emissions Trading Scheme.
Whilst we have our concerns about the detail of the scheme now
proposed, and some issues are still to be finalised, it is clear
that the cost to aviation will be significant. It is vital that
the Government does not retain APD after the industry becomes
part of ETS in 2012. Failure to end APD when EU ETS is introduced
would result in double taxation, for which there can be no justification.
January 2009
1 Ruth Kelly, Speaking as Secretary of State for Transport,
Hansard, 2 April 2008. Back
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