New aircraft tax draws qualified praise from FTO

Treasury proposals for a tax on aircraft have drawn qualified praise from the Federation of Tour Operators despite failing to take account of the relative fuel efficiency of modern aircraft.

However, British Airways has condemned the tax plan out of hand and would prefer to retain Air Passenger Duty, insisting: “APD is a fairer system than its suggested replacement.”

The proposals, released in a consultation document at the end of January, suggest taxing aircraft according to their maximum take-off weight and the distance they will fly.

That sounds fairer than APD, which is a flat-rate tax per passenger divided into simple bands – on short-haul and long-haul flights, and economy and premium classes.

It is suggested the new tax would have three bands of charges for distance – the first within the European Economic Area, a second beyond this but less than 3,000 miles from the UK, and a third over 3,000 miles.

Greece, Turkey and Cyprus would fall in the first band; North Africa, West Africa, the Canary Islands and Russia in the second; and the US, Caribbean and beyond in the third.

The duty would apply to all aircraft – including transfer passengers, business jets and freight-only flights that currently pay no APD. Only aircraft weighing less than 5.7 tonnes would be exempt – typically those with eight or nine seats.

The tax would apply no matter how full an aircraft – penalising airlines that fly half full or business-only services that carry fewer passengers.

The Government proposes to have airports collect the tax, presumably adding it to take-off and landing charges. Airports would be allowed to earn interest on the cash before handing it to the Treasury.

There are no proposed tariffs, but the Treasury says the tax must bring in over £500 million a year more than the current £2 billion raised by APD.

The problem with the proposals is that they fail to take account of fuel efficiency. The latest aircraft can use 25% less fuel, and therefore produce 25% less CO2, than older aircraft flying the same routes. The new Boeing 787, due to enter service next year, should be 20% more efficient again.

A genuine environmental tax would take account of such factors and it is unclear why they have been left out. However, airlines are split on the issue.

FTO director-general Andy Cooper, representing the charter carriers, says: “The proposals are broadly in line with where we want to be, but it is not rocket science to include the fuel efficiency of aircraft.”

EasyJet agrees, with a spokeswoman saying: “The tax would be an incentive to fill flights, but we want the age of aircraft factored in.”

But fuel efficiency would penalise British Airways, which has an older, less-efficient fleet than some short-haul rivals. BA would also have to compete with carriers such as Lufthansa and Air France that would escape much of the tax – for example, a Lufthansa service from the UK to Calcutta via Germany would only be taxed from Heathrow to Frankfurt.

One industry source suggested: “The Government may want a solution that is broadly neutral to BA.” Whatever the reason, the consultation does invite submissions on fuel efficiency.

Airlines and other industry bodies have until April 24 to respond to the consultation. Details should be finalised by October, with the tax due to replace APD from November 2009.

New aircraft tax proposals

  • Tax on all UK flights, based on maximum

  • Take-off weight and distance flown

  • Transfer passengers, business jets and freight will be included

  • Duty will apply regardless of number of passengers

  • Airlines to determine how it is passed on

  • Airports to collect the tax

  • Tax rates yet to be decided

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