Chancellor George Osborne announced a consultation on APD banding in yesterday’s Budget, hinting at reform at a system widely seen as unfair.
The consultation document offers limited options for reform, presenting a choice of two or three bands to replace the current four – and the maintenance of two rates in each band.
Option one, for two bands, suggests APD of £13-£16 on economy short-haul flights up to 2,000km and £65-£75 on everything else – which would put Egypt in the same band as Australia.
That would address the current unfair treatment of the Caribbean – taxed at the same rate as Hawaii – simply by increasing APD to other destinations. The business-class rate would remain double.
Option two, for three bands, would retain the £13-£16 starting rate, with a band B at £60-£69 and band C at £72-£83.
The Treasury will also consider modifying the distance at which a route is judged as short or long-haul.
The document invites submissions on the impact of higher APD rates on premium economy seats, but offers no clue as to whether the government intends to scrap this.
The Treasury ruled out extending APD to transit and transfer passengers, accepting the arguments of British Airways and airport operator BAA that this would hit passenger numbers at Heathrow and lead to a reduction in the number of connecting flights. It has also ruled out extending APD to freight.
However, it does propose extending the tax to business jets from next year. The government plans a single rate of duty per passenger “irrespective of distance travelled, equivalent to the highest standard rate of APD”. It anticipates this will apply to 80,000-90,000 private flights a year.