Comment: Industry in for long-haul fight on APD

Comment: Industry in for long-haul fight on APD

The government response on APD was not merely a surprise, it was shocking.

On Monday night, British Airways chief executive Keith Williams cheerily informed a room full of journalists that the carrier was taking on 800 extra staff.

On Tuesday afternoon, after the Treasury’s “we’re not for turning” line became clear, BA announced it was halving its recruitment and postponing plans to bring an additional 747 into service.

It is unlikely Williams expected to make such a turnaround, although a cynic might think it a sharp piece of political messaging.

Perhaps some in the industry had their hopes too high, but the increase in APD rates announced last week cannot have been a surprise – it had been in the Treasury’s plans since March.

The fact that the increase applies from the date of departure regardless of when a ticket was bought can’t have been a real surprise either - although it was legitimate of Virgin Atlantic to complain about this.

Nor should it have been a surprise that the Treasury declined to accept the arguments for offsetting the cost of emissions trading against APD when airlines enter the EU emissions trading scheme in January.

The separation of APD and emissions trading in Treasury minds has been clear all along. Industry lobbyists accept they are playing a long game on this issue. However, the Treasury decision to stick with the existing four APD bands, leaving the Caribbean at a tax disadvantage not just to Orlando and Las Vegas but to Hawaii, is staggering.

The tax rates are supposedly based on distance from London and the Caribbean is nearer than any of them. No alternative system would have been without its losers, but something needed to be done to correct the manifest injustice.

The case for lifting premium economy out of the same rate as first class was also compelling. Why should a few extra inches of leg room rate on a par with a flat bed?

The price differential between business-class and economy fares and between economy and premium economy is surely enough to indicate the sort of tax payer likely to occupy the seat?

The Treasury’s justifications were thin. On banding, it said: “No banding structure will be entirely free of anomalies. A revenue-neutral change . . . would inevitably require some passengers to pay more.”

On premium economy, the Treasury justified the status quo “to maintain the simplicity of the tax and avoid additional burdens”. On emissions trading, it noted: “APD is primarily a revenue-raising duty.”

The only sensible things the Treasury has done are moves to bring in business jets and make an exception for long-haul flights from Northern Ireland. The government appears to have closed the door on all but the issue of different APD rates from southeast airports and the rest of the UK, on which the Treasury gave an equivocal response.

The anger in the industry is real. Seldom do official press releases appear emotional, but on Tuesday they did – denouncing the consultation as a “sham” and “waste of money”, and the government view as “inconceivable” and rejecting “all common sense”.

There is clearly a determination to fight on. Equally clearly the Treasury is not persuaded. Why? For one thing, the government needs the money. Treasury ministers and officials are not minded to be persuaded.

For another, it views APD as hitting primarily the well off. The Treasury balked at raising the short-haul rate, paid by the majority of passengers, by more than £1. It rejected a change to banding on the grounds that it “would inevitably require some passengers to pay more."

More explicitly: "A move to a two-band structure would require passengers travelling within the UK and Europe and those travelling to band B destinations (including the US) to pay more.”

Third, the Treasury continues to believe aviation gets off ‘lightly’ in other regards – “VAT is not applied to flights”, “aviation fuel is not taxed”. The industry faces a challenge in surmounting these obstacles. The battle against APD may be a longer haul than anyone envisaged.

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