Industry applauds Osborne’s ‘first step’ to air tax reform

The travel industry has been quick to welcome Chancellor George Osborne’s surprise announcement that he is to introduce a single tax band for all long-haul flights, which will reduce the cost of flying to many destinations including Asia and the Caribbean.

Osborne announced in yesterday’s Budget statement that from April 1 next year all long-haul flights will be taxed at the same rate as flights to the US, which are in the B tax band. He is ditching the higher C and D bands.

His announcement to the House of Commons caught the travel industry off guard. Although many had been pushing for reform of multi-band system, which was considered inherently unfair as often passengers pay less for flying further, the Treasury had not previously indicated this was on the cards.

However, Osborne acknowledged that it was "crazy" that passengers were taxed more for flying to India or China than those flying to Hawaii and he admitted the tax was hitting exports, deterring tourists and creating "a sense of injustice" within Britain’s Asian and Caribbean communities.

A spokesperson from A Fair Tax on Flying, which has campaigned for lower air tax, said ditching the higher tax bands would save passengers £200 million annually. 

It added: "The new banding system will help exporters including outbound tourism, it will encourage inbound tourism from long-haul destinations such as India and China and it will remove some of the distortions associated with the current system hurting holidaymakers – such as the premium passengers pay to travel to the Caribbean.

"Today’s decision is therefore a positive first step. Hopefully the reforms announced today will have a such a positive impact that they will encourage the Government to undertake further reforms of APD in future."

ABTA chief executive Mark Tanzer said: "ABTA strongly welcomes the Chancellor’s announced cut to Air Passenger Duty and changes to the banding system as a first step in the reform of this damaging tax.

"Moving all long-haul flights into band B of APD at current levels will save passengers over £200m annually, and should boost travel and tourism as well as promote greater UK connectivity.

"ABTA has been at the forefront of campaigning to reform and reduce APD, and today’s announcement is a clear recognition from the Government of the negative impact this tax is having."

However, Tanzer signalled the fight for further reductions will continue.

"Whilst today’s Budget is very much a step in the right direction, ABTA will continue to call for a reduction in overall rates of APD which, at their current band A and B levels, will continue to inhibit the contribution of the travel and tourism sector to growth and employment," he added.

"ABTA will also review any potential anomalies created by the new banding system, and work with Government to mitigate their impact."

The new tax bands will take effect from April 2015, meaning a family of four will save £112 on flights to Sydney, Australia and £64 on flights to Cancun, Mexico.

Scottish Passengers Agents’ Association president Jimmy Martin said: "It’s a welcome first step, and a sign that the Government can listen when it’s motivated – or feels pressured – to do so. We hope it will be followed – before the next election – by a significant reduction in the high levels of APD currently levied on every UK air traveller."

Dale Keller, chief executive of the Board of Airline Representatives said: "The Government has finally acknowledged what the industry and business knew all along – that the highest rates of aviation tax in the world were a brake on driving the UK’s economic growth with emerging markets.

"Of course we would like the Chancellor to go further still on reducing APD but this is a step in the right direction and BAR UK will continue its engagement with the Government to deliver the fair and proportionate aviation tax that the UK deserves."

Virgin Atlantic welcomed the simplification of the air tax. In a statement it said: "A two band APD rate is a very welcome simplification to remove some of the biggest distortions of the current system, which the Chancellor himself admitted is crazy and unjust. The Government has rightly recognised the damage APD is having on exporters and the travelling public alike.

"A tax system which penalised high growth emerging economies such as China and India was always contrary to the Government’s stated policy on trade and exports, so this is a positive step that recognises the impact of this economically damaging tax.

"There is a growing body of evidence demonstrating the huge economic benefits to the UK of reducing or abolishing APD and we hope that the Government will continue to go further in the long run."

TUI chief executive Peter Long said: "We recognise the importance of this change and the difference that it will make to hardworking families in the UK, along with the tourism destinations worldwide that will benefit from reduced Air Passenger Duty rates."

Cressida Sergeant, spokeswoman for TravelSupermarket, said: "We very much welcome the announcement that all long-haul travel will now be subject to the band B rate of £67 per person departing from the UK.

"Currently a family of four will pay a total of £376 in APD charges for a flight to band D destinations such as Australia or New Zealand. As a band B destination, this will reduce to £268, a total saving of £108.

 "This is good news for both UK residents travelling to long-haul destinations and for visitors to the UK who are flying onto destinations previous within bands C and D."

Online travel agent loveholidays.com said it was "a victory for the travel industry on behalf of the hard-working holidaymaker".

"We expect to see a spike in enquiries for holidays to Caribbean favourites such as The Dominican Republic, Jamaica and St Lucia as travellers realise that APD charges for these islands will fall," said CEO Al Francis.

The Chancellor also announced government support for start-up flights from regional airports, which got a luke-warm response from BAR UK. "We will need to evaluate any potential competitive distortion that could result, however, the Government’s intentions are clearly supportive," said Keller.

Heathrow Airport used the opportunity to push for a third runway. CEO Colin Matthews said: "The Chancellor is right that British businesses need to sell more overseas and we welcome the package of support for exporters, as well as the reduction in Air Passenger Duty for long-haul flights to countries like India and China.

"A third runway at Heathrow would allow Britain to add new flights to those markets and help the Government deliver more trade, more jobs and more economic growth."

The Association has, however, also expressed ‘concern’ that the overall level of APD has not been reduced.