Tax Increase to Hurt Economy and Jobs

May 19, 2011 Taxation in UK

Smoke on a planeThe UK government’s plan to raise Air Passenger Duties will lead to an economic slowdown for the country, and increased levels of harmful pollutants being released into the atmosphere.

The UK government’s plans to raise Air Passenger Duty (APD) tax once again has come under fire, with a new report commissioned by the airline EasyJet, released on May 18th, claiming that the tax will have significant negative effects on the national economy and the aviation industry.

In late March 2011 the UK government released a proposal for the overhaul of the national APD rules. Under the current system, flyers are charged a tax on their flight, with the rate based on the distance traveled and class of ticket taken. There are currently four distance bands, with destinations less than 2000 miles off the UK seeing a GBP 12 tax, GBP 60 for distances of 2001 miles to 4000 miles, GBP 75 for 4001 miles to 6000 miles, and GBP 85 for anything above 6000 miles. The proposal suggested that the charges should now be split into two brackets, with flights being classified as below 2000 miles and above 2000 miles. The rates would be changed to GBP 16 and GBP 75 respectively.

According to the new report, the proposed changes would lead to significant differences in air companies’ behavior, and extensive negative effects for passengers. The research suggested that the new tax will reduce the number of jobs in the airline and aviation industry by approximately 77 000 in the UK. The national GDP will fall by nearly GBP 2.6 billion per year, with almost GBP 475 million being lost in the tourism industry. Total passenger numbers will decrease by an estimated 3 million per year, and altered consumer behaviors will cause flight changes leading to extra CO2 emissions of 360 000 tons per year.

Commenting on the report’s conclusions Carolyn McCall, EasyJet chief executive officer, suggested that the government should consider instating an alternative tax that would be levied on the plane itself, and not the passengers. She said that the move would encourage airlines to plan their flights more efficiently, and would ultimately benefit 4 out of 5 British consumers.

Photo by triplexpresso