A study commissioned by the major US airlines calls for a sharp rise in Air Passenger Duty (APD) on short-haul flights to allow a cut in tax on long haul.
The study, by consultancy Oxford Economics, suggests an increase in APD on short-haul economy flights to £19 per person would allow a cut in the tax on medium and long-haul flights and boost the UK economy by as much as £180 million a year.
Oxford Economics argues a single rate of APD at £51 per economy passenger should apply on medium and long-haul flights. It says this would not reduce the revenue to the Treasury, but would encourage more long-haul visitors to the UK. Long-haul visitors generally stay longer and spend more than short-haul visitors.
American Airlines, Delta Air Lines and United Airlines paid for the research. The recommendation will enrage low-cost carriers easyJet and Ryanair, which fly almost wholly short-haul routes and have been demanding there be no increase in short-haul APD rates.
The current APD on short-haul economy fares is £12. Long-haul rates vary from £60-£85, with business and premium economy seats rating double the amount. In public, most carriers – including the US airlines – are demanding the abolition of APD, but in private all are putting proposals to the Treasury that accept the tax will continue.
Oxford Economics reports current APD rates discriminate against long-haul passengers, suggesting: “APD on long-haul travel ranges between five and seven times that for short-haul passengers.” It says: “This discrimination has been growing since APD was introduced. Since 1994 short-haul APD has increased by 76%, while long-haul APD has increased by 520%.”
The report adds: “Long-haul visitors [to the UK] spend on average more than twice the level of short-haul visitors.” Oxford Economics argues an additional boost to the economy would come from some UK travellers choosing not to fly abroad and spending money at home.
The government consulted on reform of the APD regime earlier this year and will announce any changes in November. The Treasury plans to raise the aviation tax take overall next year, but has proposed a maximum rate on short-haul flights of £16.
Oxford Economics chief executive Adrian Cooper said: “Any measures that can boost the economy and do not harm public revenues should be taken. Official statistics show long-haul visitors to the UK spend significantly more than visitors from Europe. Every effort should be made to reduce the level of discrimination against long-haul visitors.”
He added: “Such a move would benefit UK businesses seeking to expand trade with emerging markets.”