30 Years of Air Passenger Duty – Surely You Can’t Be Serious?
1 November 2024 will mark the 30th anniversary of Air Passenger Duty. Hated by passengers, loved by Governments.
Air Passenger Duty went live in 1994, but was introduced in 1993 by Kenneth Clarke, Chancellor of the Exchequer, who thought it was unfair that international agreements let air transport fly on fully duty rebated aviation kerosene, as a result being the only form of transport that was not taxed. As a counterbalance, Clarke brought in an excise duty collected by airlines on passengers who start their flights from the UK. It was never positioned as a ‘green’ tax. Clarke said at the time, “I need to raise revenue…in a way which does least damage to the economy.”
The Finance Bill that brought in APD and Insurance Premium Tax was the largest to date, and HM Customs and Excise had not introduced taxes of such weight since the creation of VAT.
The Assistant Secretary at Revenue Duties A in Manchester put in a bid to take on the new tax as, “it sounded interesting and it would help to protect jobs which we were due to shed as part of delegation savings.” A specialist was transferred in to design training, guidance and public notices in liaison with the newly formed Centre of Expertise in Uxbridge. Tasked with exchanging practical knowledge with excise staff around the country and answering trader queries while the new tax was still being developed, the Uxbridge excise staff set up a helpline as it quickly became clear that the new duty would be anything but straightforward. At the same time, the Manchester team received a steady stream of letters from airlines and special interest groups looking for exemptions and changes to the regulations.
APD went live from 1 November 1994. In the years since it was introduced, APD has generally increased (Gordon Brown doubled the rate for business and first class passengers in 2006 to address a shortfall in government finances) and although George Osborne exempted children travelling in the cheapest seats, and Rishi Sunak halved APD on domestic flights in 2023, Jeremy Hunt said it would rise for First and Business Class passengers in the 2024 Spring Budget. Airlines have always opposed the duty since it increases the cost of airline tickets. Despite lobbying from special interest groups, Treasury Minister David Gauke said APD was non-regressive and, “abolishing it would have a small effect on GDP and cause a net loss of tax receipts.”
Since airlines have often found ways of soaking the passengers (such as “fuel surcharges”) it is doubtful whether the abolition of APD would provide any long term benefit (and would certainly deprive the Government of income). Surely, APD is here to stay.