APD should stay 'in lieu of VAT' on flying says economist

APD should stay 'in lieu of VAT' on flying says economist

A senior economist has re-opened the argument for a per-plane tax to replace Air Passenger Duty (APD) but has told the industry “APD is here to stay”.

Writing in today’s Travel Weekly Business:am, economist Tim Leunig says: “No industry thinks the taxes they pay are fair. Companies that hire a lot of people dislike National Insurance: a tax on jobs. But APD should stay because aviation would otherwise be hugely under taxed.”

Leunig is chief economist at the liberal think tank CentreForum and spoke at Abta’s recent Travel Matters conference in London.

He argues: “Aviation counts as public transport and is thus exempt from VAT because it counts as a necessity.

“How flying halfway round the world on holiday could be described as a necessity is beyond me.”

Leunig says APD should be seen as a tax “in lieu of VAT” and says of the current rates: “£13 looks a bit on the low side to be a substitute for APD.”

Comparing APD to the UK VAT rate of 20%, Leunig argues: “Business class APD rates are far lower than 20%.”

However, he says: “APD is a poorly designed tax. Passengers flying over 2,000 miles face an arbitrary leap in APD from £13 to £65. APD does nothing to promote better practice by airlines.

“It would be possible to tackle these issues by moving to a per plane duty calibrated on the expected carbon emissions of a particular type of plane on a particular route. It would encourage airlines to fill up their planes.”

Abta, easyJet and the major tour operators backed a move to a per-plane duty as promised by the current government, but the idea was opposed by British Airways, Virgin Atlantic and most other airlines and dropped by the Treasury.

Opinion: Time to replace APD with a 'per plane' duty

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