11 March 2021

Tax pollution, not passengers


If reports in the Financial Times are to be believed, Boris Johnson wants to slash Air Passenger Duty on domestic flights. This comes off the back of an interim report as part of the ‘Union Connectivity Review’, currently being undertaken by the chair of Network Rail, Sir Peter Hendy.

We’re told the Prime Minister thinks the cut would help the aviation industry, which has been hammered by the coronavirus pandemic. Presumably, he also sees it as part of his campaign to ‘level up’ the nation, and strengthen the Union.

You might think these are all admirable objectives, and, after last week’s Budget, it’s nice to see talk of taxes going down instead of up. Yet I can’t help but feel sceptical on this one.

It’s worth reminding ourselves what Air Passenger Duty is. Introduced in November 1994, Air Passenger Duty is a levy charged on all passenger flights departing from UK airports. Rates differ depending on the distance of the flight, with destinations split into two bands: Band A for flights to countries where their capital city is less than 2,000 miles from London, and Band B for anything further. Rates also differ on the class of seat – basically charging less for economy seats, and more for business class (and even more on top of that for private jets).

Altogether, if you’re thinking about taking a flight this summer, expect to pay anywhere between £13 and £541 in Air Passenger Duty alone.

The best justification for the tax is on environmental grounds. Propelling hundreds of tonnes of metal through the air requires a lot of fuel to be burnt. This contributes to climate change, but also adds to air and noise pollution too. In accordance to the polluter pays principle, it’s only fair that those creating that pollution should pay for the damage it creates. (Certainly, this is preferable to alternatives like bans or restrictions on flying, or whopping subsidies for public transport.)

Without doubt, Britain’s ability to fight climate change is bolstered – if even only marginally – by Air Passenger Duty. Common sense and economic theory tell us that without it, the supply of flights would be greater, as would emissions. However, that’s not to say that it can’t be improved as a policy.

Above, we saw just how complex and arbitrary Air Passenger Duty can be. Policymaking will always be fraught with snags like these – and it’s all too easy to let the perfect be the enemy of the good. But in this case, relatively simple changes could be made to radically improve how flying is taxed.

Fundamentally, when we tax flying, all we want to tax is the emissions it creates. The best way to do this is through carbon pricing – something we already do for electricity generation. Here, each tonne of carbon dioxide emitted would be taxed at a set price – for electricity it is currently levied at just over £18 per tonne – and the tax would be paid by the airline itself.

Estimating the carbon dioxide emitted by a single flight is superficially tricky. How much more does a flight to Seoul create than one to Tokyo? What about newer planes with more efficient engines? What about lighter aircraft relative to heavier ones? To get around this, the carbon tax should be levied on the jet fuel instead. We can roughly estimate how much carbon dioxide the combustion of any fossil fuel creates – as the amount produced is a function of the fuel’s carbon content.

Doing so would have some interesting consequences for airlines. Suddenly, their fuel costs will have increased. They now have a much more direct interest in minimising the amount they use. In all likelihood, research and development money would be ploughed into innovations to cut fuel consumption – such as engineering lighter components, or working out how to improve routing. Hopefully, the race to crack zero-emission aviation would gain the traction it sorely needs – the prize for any company which manages to do so is avoiding the tax on fuel altogether.

Other peculiarities would be smoothed out by transitioning from Air Passenger Duty to pricing flights’ carbon emissions – not least the weird practice of having destination bands, and then basing them on distance from respective capital cities.

Some may – rightly – point out that efforts to improve Air Passenger Duty have failed in the past. But that was then and this is now. In November, the UK will host COP26 – the international conference where countries will convene to redouble action on climate change. It is hard to think of a better forum for the UK to lead the charge for implementing a new and improved regime for making aviation more sustainable.

Johnson is right that Air Passenger Duty should be reformed. But simply cutting it without making any other changes would be a huge missed opportunity – and do little to boost Britain’s climate credentials. Instead, let’s hope it’s carbon pricing that is cleared for take-off.

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Eamonn Ives is a Senior Researcher at the Centre for Policy Studies.