Pre-Budget Report 2008: Green fiscal policy in a recession - Environmental Audit Committee Contents


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    —  APD should be withdrawn as soon as aviation becomes part of the EU Emissions Trading Scheme in 2012.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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