Govt gives hints about future shape of APD in consultation document

The government has opened consultation on reform to Air Passenger Duty, inviting comments from the industry by 15 June.

The document said the government’s initial policy position is that an increase in the number of international APD distance bands “would align APD more closely with our environmental objectives”.

It suggested either reverting to a four-band structure, similar to that previously introduced in 2008, or introducing a new banding.

The paper recognised previous difficulties whereby the Caribbean was put in a higher band than the US because banding was based on the distance from the UK to capitals. “These factors led to decision in 2014 to revert to the two-band structure,” it said.

It added: “The alternative approach would be to design a new distance band structure, different to that introduced in 2008. The government could seek to introduce three international distance bands at the following distances: 0-2,000 miles; 2,000-5,500 miles; and 5,500 miles plus. As with the current two-band structure, the Russian Federation would be split east and west of the Urals.”

The document also confirmed the government is likely to reject APD exemption for the return leg of domestic flights in favour of a new APD band, which The Treasury said would be simpler.

“The government’s initial policy position is that the introduction of a new domestic band would be the most appropriate approach to reducing the domestic rate of APD, as opposed to the reintroduction of a return leg exemption,” it said.

A frequent flier tax has also been rejected. “A frequent flyer levy would be significantly more complex to administer than APD, for both airlines and HMRC, on the basis that it could require the government to collect and store personal information on each passenger,” it said.

“The government is therefore minded to retain APD as the principal tax on the aviation sector and not introduce a frequent flyer levy as a replacement, and welcomes views on this position.”

APD raised £3.6 billion in 2019-2020, but revenue fell 87% in April-September 2020. The government said its primary aim “is to ensure that airlines make a fair contribution to the public finances”. It underlined that revenue from APD is not used for a specific purpose, but to fund public services in general.

The paper also said the UK government would “continue to engage with the Northern Ireland Executive” on the devolution of short-haul APD.

Currently, Northern Ireland short-haul flights are at a price disadvantage to those over the border, as Ireland does not levy a per passenger aviation tax. APD on long-haul flights from Northern Ireland was set at zero in order to stimulate growth of new routes after the Executive was granted devolved power in 2012.

The document added that devolution of APD to the Welsh government would have a similarly distorting effect between England and Wales.