The chancellor’s freeze on Air Passenger Duty (APD) in today’s Budget has only deferred a rise to next April, when rates will increase in line with the Retail Price Index (RPI).
The RPI inflation rate hit 5.5% last month suggesting a significant rise, although the Treasury forecasts an average RPI rate of 3.6% next year. However, the 2012 rise in duty will also include that deferred today which was planned for November.
A Treasury spokesman confirmed the increase will be from April 2012 and not November. He also confirmed next year’s rise in APD would include revenue lost to the Treasury by deferring an increase this year.
Treasury forecasts assume £145 million would have been raised from the postponed increase in the current tax year, but that £300 million will be added to the overall APD bill in 2012-13 – taking the total tax burden on air passengers to £2.8 billion.
How this will affect APD rates on fares to particular destinations depends on the Treasury reaction to a consultation on banding launched today. This includes plans to extend duty to flights on business jets, which would account for some of the increase forecast next year.
Amanda Wills, Virgin Holidays managing director, said: “We welcome the news concerning a freeze on the threatened APD rise, although it feels like a temporary stay of execution rather than a full reprieve.
“This was an opportunity for the government to make a bold commitment to the UK travel industry and a clear statement of its support for communities and economies which are dependent on tourism.
“Unfortunately, we have something of a fudge which leaves the possibility of future rises open. It is also disappointing that the government has not acted decisively on the many calls that have been made to review the banding system for travel to overseas destinations.
“The consultation is a positive signal for regions such as the Caribbean which are dependent on tourism for a substantial part of the GDP and employment, but we believe this was an opportunity for a clearer message to be sent.
“We join our colleagues in the travel industry both here and overseas in urging the chancellor to work with us and act on this matter urgently and introduce a fairer system.“