The government has delivered a blow to industry demands to review Air Passenger Duty, dismissing evidence of APD’s economic impact.
The rejection of the case to abolish or review APD came in a reply to a Transport Select Committee report published yesterday.
The Committee of MPs had called for a Treasury study of the economic impact of APD and for the government to respond to a PwC study, commissioned by leading airlines, which concluded abolishing APD would benefit the UK economy.
In its response yesterday the government said it “disagrees with the findings of the PwC report”.
It said: “The government believes abolishing APD would have a smaller impact on GDP than the report implies and would cause a net loss of tax receipts.
“This . . . would need to be paid for through tax rises or spending cuts elsewhere, which would themselves have an economic impact.”
The response went on: “In contrast to PwC, the government considers APD a relatively efficient and non-regressive tax. Abolishing it could require us to increase more distortive and regressive taxes.”
The government rejected the demand to review APD – which the industry coalition A Fair Tax on Flying has put at the core of its campaign – saying: “The government has no plans to undertake a review of the economic impact of APD.”
The select committee had also called for an analysis of the impact of differential rates of APD and suggested a 12-month “APD holiday” for new services operating from airports outside the southeast.
The government dismissed both demands, pointing out the aviation sector is split on the issue of regional rates and suggesting this would produce a hike in APD on fares from London airports.
It said: “Changes to the structure of APD were considered as part of the 2011 consultation [on APD].
“Some regional airports called for higher APD rates at congested airports in the southeast . . . However, the majority of airlines were opposed to any regional variation of rates.
“More recently, a research report by HMRC [Revenue and Customs] . . . provided valuable new evidence which suggested significant passenger redistributions to regional airports would only occur if APD rates at Heathrow and Gatwick increased substantially . . . by 50% or more.
“The report also suggested . . . some regional airports could lose out.”
The government added: “An ‘APD Holiday’ . . . may result in a shortfall in essential Exchequer tax receipts.”
Members of A Fair Tax on Flying expressed dismay, saying they were “extremely disappointed” at the response.