Written evidence submitted by TUI Travel
Plc
AIR PASSENGER
DUTY
- TUI Travel was extremely disappointed with the
Government's decision not to carry out its manifesto commitment
in replacing Air Passenger Duty (APD) with a per plane tax (PPD).
We would welcome further discussion as to why the Government felt
it could not pursue this policy under international law.
- Aviation taxation should be used to incentivise
efficient use of aircraft whose impact on the environment is lowest.
Only a per plane tax can achieve this objective.
- The freeze in APD rates for 2011 was welcomed
by the industry. However there had been no indication from HM
Treasury that APD would be subject to annual, RPI linked increases.
This will result in a double rise in 2012.
- TUI Travel welcomed the inclusion of private
and business jets within the scope of the scheme.
- Whilst encouraged by the consultation to review
the anomalies surrounding geographic banding and premium economy
passengers, TUI Travel hope for a swift resolution to these issues.
- Aviation is a key driver of economic growth.
Whatever the structure of APD after the current consultation,
any reforms should not be seen as an opportunity to increase the
overall tax take on aviation. Such an approach would serve to
limit the ability of aviation to generate and facilitate economic
growth.
- TUI Travel would welcome further clarity from
the Treasury Select Committee Inquiry on the following:
- To understand in more detail, the Government's
legal concerns surrounding the introduction of PPD.
- To understand how the Government aims to pursue
its policy of PPD with the international community.
- To clarify the timescales for change of the geographic
banding system and premium economy taxation, following the end
of the consultation period (due to end on 17 June).
- To ask whether the Government would consider
investing APD revenue into environmental projects that will develop
cleaner aviation technology.
- To gauge whether the Government would offset
income from emissions trading against total APD revenue, once
the aviation sector joins the EU Emissions Trading Scheme (EU
ETS) in January 2012.
- To understand whether the Government would review
the long term validity of APD, once aviation's inclusion in the
EU ETS had been effectively achieved.
INCENTIVISING CARBON
EFFICIENT BEHAVIOURS
1.1 TUI Travel is recognised as a leader in sustainable
tourism and sustainable aviation. TUI Travel's UK airline, Thomson
Airways, operates with the highest load factors in the UK industry
and therefore makes the most efficient use of its fleet and of
the airport slots made available to it. Thomson Airways operates
with an emission rate of 76g CO2 per passenger kilometre
flown, significantly lower than average emission rates for both
low cost and full service scheduled carriers.
1.2 Further, TUI Travel has committed to reducing
its direct carbon emissions from its aircraft fleet by 6% by 2013-14
(against a baseline of 2007-08) in terms of total carbon emissions
as well as relative (per passenger) carbon emissions. In 2008-09,
TUI Travel's airlines decreased their collective carbon dioxide
emissions by 3.75% during that financial year, saving over 220,000
tonnes of carbon dioxide. TUI Travel's policy is to consistently
renew our fleet so that we have a higher proportion of newer,
more efficient aircraft. We, and other responsible players in
the aviation industry, need a tax framework that properly incentivises
and rewards those behaviours and makes the investments required
to achieve the targets set out above commercially viable.
RESPONSE TO
THE BUDGET.
2.1 TUI Travel has been a consistent supporter
of a move from APD to a per plane duty and were a particularly
disappointed when the Government decided not to carry out its
pledge within the Coalition Agreement. We would be interested
to understand what the specific legal concerns were surrounding
the Chicago Convention in relation to implementing PPD that forced
the Government u-turn. We are hopeful that this important Coalition
pledge has not been completely scrapped and would be happy to
engage with the Government in its plans to build international
consensus on this issue.
2.2 Whilst the freeze on APD rates was welcome
for 2011, the Budget indicated that APD would be subject to annual
RPI linked increases. This took the industry by surprise and will
effectively mean two rises rolled into one in 2012.
TUI Travel noted that APD has again been positioned
as an environmental tax and would welcome the opportunity to discuss
with Government the ways in which the revenue raised could be
invested in R&D projects such as aviation bio fuels.
HOW SHOULD
A PER
PLANE DUTY
BE STRUCTURED?
3.1 Despite the Government U-turn, TUI Travel
still believes that only a per plane duty can be properly structured
to reward and incentivise efficient slot and aircraft utilisation
and reduced emissions. To achieve this we believe that the proposed
per plane tax should:
- Incentivise air emissions efficiency and investment
in new technology.
- Incentivise efficient airport slot utilisation.
- Allow for reduced levels of taxation upon aircraft
operations that are operated by 'new generation' environmentally
efficient aircraft such as the B737/800 and B787 while taxing
more heavily polluting aircraft at a higher rate.
3.2 In order to achieve these aims, we believe
that the most appropriate structure of the tax would be one that
mirrors the calculation methodology that will be used in the EU
Emissions Trading Scheme (EU ETS). This has three immediate attractions
and advantages:
- The regulatory burden would be low as there would
be no need to introduce additional processes or measurements over
and above those necessary for EU ETS compliance.
- Assuming that EU ETS does not breach international
law or the Chicago Convention, then the same must be true for
any scheme that is based upon the same principles.
- Collection of the duty would be straightforward
as airlines would self invoice, make regular remittances to HMRC
and periodically reconcile their accounts against actual emissions.
REMOVING THE
STRUCTURAL ANOMALIES
OF APD
4.1 TUI Travel welcomed the new consultation
which outlines proposals to reform the anomalies surrounding geographic
banding and premium economy passengers. We will contribute fully
to the consultation process and hope these problems can be resolved
quickly. Both need to be resolved in order for the industry to
make long term business decisions; in terms of the destinations
which they operate to and the seating pitches of new aircraft.
4.2 The current banding system, based as it is
on locations of capital cities, produces inequitable and perverse
results. Likewise the taxation of premium economy cabins at the
same rate as first class or business class seats has led to withdrawal
of this popular product in some parts of the sector. This represents
a consumer detriment since it reduces choice for customers.
PREMIUM ECONOMY—WHAT
IS THE
SOLUTION?
4.3 Carriers have consistently asked for passengers
in premium economy to be charged the reduced rate of APD. During
the November 2008 Pre-Budget Report, the Treasury closed a current
loophole that permitted "all business class" operators
to pay the reduced rate of APD, by using a 40" seat pitch
as the metric. If the seat pitch is greater than 40" then
the standard rate of APD applies. The Industry has suggested a
similar solution to the Treasury surrounding premium economy,
by utilising the same metric for longhaul only products.
4.4 The Treasury has however raised an issue
surrounding transfer passengers that fly out of the UK in premium
economy, and then transfer to take a further flight in a higher
class. At present the higher rate of APD would apply to a small
volume of passengers. HMT are concerned at how this issue will
be dealt with at an operational level. The industry sees this
as a very minor issue and has provided the necessary statistics
to Treasury officials.
4.5 Without change, the very existence of premium
economy will be put in jeopardy.
AVIATION A
DRIVER OF
ECONOMIC GROWTH
5.1 The Aviation and Tourism sectors are significant
drivers of economic growth. This economic growth is desperately
needed in both the UK and world economies in order to assist in
reducing public debt. In the UK, the development and growth of
the aviation and tourism industries can help in rebalancing our
economy. We believe, therefore, that the any restructuring of
APD should not be seen as an opportunity to tax the aviation sector
more heavily than it is already. Such a policy would, we believe,
be counter productive and militate against growth in the industry
and in the wider economy.
5.2 Further, in order to ensure that the UK aviation
industry remains competitive in a European and Global context,
UK specific aviation taxation should be withdrawn, or significantly
reduced, once the EU Emissions Trading Scheme is introduced in
January 2012. TUI Travel would welcome further discussion as to
how this will affect the taxation regime for the sector once the
system has been embedded.
March 2011
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