The transport sector already provides the majority of the UK’s environmental tax income, with fuel duty representing 5% of all government receipts. Total environmental taxes account for about 7%, and the government aims to increase that to 10% by 2020.
Environmental taxes, especially fuel duty, were introduced as a fund-raising mechanism, but are now expected to play a role in driving low-carbon behaviours so the UK can keep up with legally binding carbon targets.
Increased APD rates are just one example of how the industry is feeling the weight of the government’s green ambitions. The increase came shortly after changes to the Carbon Reduction Commitment in the recent government spending review which converted this scheme, in effect, to a carbon tax on UK businesses. The government is moving more towards direct taxation of environmentally harmful activities.
Consumers are already coming to terms with the reality that it is becoming more expensive to fly. Developing nations will disproportionately feel the effects of reluctance to pay an extra £11-£85 per person, particularly on family holidays.
People need to fly and want to go on holiday. As competition for global capital increases, government regulation will move towards rewards for reducing environmental impact.
Carbon trading, due to come into force for aviation in January 2012, will be a game changer. The sector will have to buy carbon permits to cover its emissions under the EU Emissions Trading Scheme, effectively creating a second form of tax on air travel. Reform of APD into an aviation duty linked more closely to emissions is expected to enter consultation soon.
Businesses surveyed by PwC globally this year indicate they are generally supportive of taxation and regulation to effect change on environmental issues, but they want to see tax revenues spent on green measures such as tax incentives for low-carbon behaviours.
They also want clear long-term investment signals and input into the formulation of policies. Certainty, international consistency and simplicity are the biggest challenges. UK businesses are keen to ensure they are not disadvantaged by the government’s attitude in this area.
National and regional agreements on climate change are likely to emerge quicker than an international agreement, presenting a conundrum for the travel sector as a global industry grapples with localised regulation and taxation.
Mark Schofield is a PwC partner on environmental tax and regulation