This article briefly looks at why the aviation industry is virtually a tax-free zone, and what should be done about it.
It has always puzzled me why that basic element of sensible planning and transport - reducing the need to travel - never seems to have been applied to air travel. This has somehow been exempt, but has rarely been explicitly stated. Funny that! The famous report on Transport and the Environment by the Royal Commission on Environmental Pollution in 1994 summed up the problem very succinctly -
"An unquestioning attitude towards future growth in air travel, and an acceptance that the projected demand for additional facilities and services must be met, are incompatible with the aim of sustainable development ... the demand for air transport might not be growing at the present rate if airlines and their customers had to face the costs of the damage they are causing to the environment".
Earlier, in 1993, the Runway Capacity to serve the South East (RUCATSE) working group published its report on increasing runway capacity. When the government responded, in 1995, it paid little heed to the Royal Commission's views, stating that decisions on capacity at UK airports are of "very limited relevance" to the goals of sustainable development.
But air travel's time has now come. The present government's promised national review of air transport policy has emerged in the form of a consultation document entitled The Future of Aviation. The Department of the Environment, Transport and the Regions (DETR) is consulting until 12 April.
A review of UK airports policy looking 30 years ahead was earmarked in the 1998 Transport White Paper. It's a big job. And does not end with the current consultation document. In 2002 there will be six regional consultation documents.
There is to be a specific South East and East of England Regional Air Service Study which will be followed by public consultation, but not until a decision has been announced on a fifth terminal at Heathrow Airport. The eventual product will be a White Paper which will take account of all the consultations and also the fifth terminal decision.
The current consultation document recalls how air passengers at UK airports have trebled over the last 20 years, mainly due to economic growth and, importantly, reduction in the real cost of air travel. Forecasts are for a doubling of present travel by 2015, unless this demand is constrained. In 1998 160 million passengers used UK airports. This could rise to 400 million in 2020. This is the equivalent of four new Heathrows or eight new Gatwicks.
Currently demand for runway slots at Heathrow significantly exceeds capacity for almost the whole day; Gatwick has no spare capacity in peak hours; and both Luton and Stansted have pressure on their peak hour capacity.
Air freight is also expanding rapidly. Forecasts predict that by 2050 19,000 freight aircraft could make up 31% of the total commercial fleet. Finally, recreational flying is on the increase, currently accounting for 3% of global aviation fuel use.
Uniquely air travel is virtually tax-free. Yet there are strong financial and environmental cases for taxing it. For a start, it's noisy. 331,600 people were affected by Heathrow's noise in 1999. This is a welcome reduction from the 1.5 million in 1979, but is still a huge number of people.
The amount of land needed for airports is colossal. Heathrow takes up nearly 3,000 acres. If the fifth terminal is built 1%: of London will be Heathrow.
Look at any pollution map of London and you will see the effect of Heathrow. This is not so much pollution from aircraft as from road vehicles. By 1987 sections of the M25 near Heathrow designed to carry 79,000 vehicles per day were carrying 131,000.
Finally, aviation is the industry making the fastest growing contribution to climate change. It is estimated to be responsible for 3.5% of man-made climate change. By 2050 this figure could be 10%. So, what remedies are there?
What is the logic of motor vehicle fuel being subject to fuel duty and VAT but airlines (also ships) paying neither on their fuel? Motorists pay about 80p per litre for their fuel, airlines about 18p. If duty was imposed on aircraft fuel at the same rate as unleaded petrol it would raise £5 billion per year, assuming no change in demand. So, why has aviation fuel never been taxed? Simply that aircraft would fill up in countries where there was no tax!
Central government does at least acknowledge that the tax exemption for kerosene is an anomaly. However, change is not straightforward, with worldwide agreement needed, as exemption from taxation is included in over 2,000 bilateral air service agreements.
Bus and train fares are exempt from VAT, but motorists pay it on their petrol. But all air travel is zero rated. Why? Again, probably the practical one of being able to buy airline tickets in any country, thus evading the tax. However, all European Union (EU) countries impose VAT. So it should be possible to impose VAT on a European basis, if tickets purchased outside the EU were made subject to VAT when used at EU airports. The cost of the zero rate of VAT for aviation has been estimated at £1.8 billion in 1999/2000.
This concession on purchases by passengers has now been abolished for all flights within the EU. The cost to the Exchequer has been estimated at £400 million per year. However, duty free goods are still available on flights to destinations outside Europe. There are no valid economic reasons for continuing duty free, and it is clearly incompatible with policies to discourage smoking.
Yes, this is a tax and yields about £1 billion per year. However, this year sees a reduction for cheap flights within the UK, or from the UK to the rest of Europe. The Royal Commission on Environmental Pollution has called this "a retrograde step which sends entirely the wrong price signal".
The environmental damage caused by the industry is now well recognised. The EU, national governments and major international organisations signed up to sustainable development at the Earth Summit in Rio de Janeiro in 1992.
Then in 1997 they signed up to greenhouse gas reductions at the Kyoto conference. But appropriate action is minimal. France does have a noise tax, and Zürich in Switzerland is introducing one in June 2001. That's about it. And the aviation industry was specifically excluded from the Kyoto agreement!
But in the UK, despite the 'polluter pays principle' and the 1998 Transport White Paper stating - "aviation should meet the external costs, including environmental costs, which it imposes", no action has been forthcoming so far. Yet the Treaty of European Union in 1992 states the polluter should pay for environmental damage.
On the one hand BAA bemoans the fact that Heathrow and Gatwick are among the most congested airports in the world, whilst claiming that landing charges to airlines are among the lowest in the world, and have fallen by at least 15% in real terms over the past ten years. Indeed BAA makes more money from shopping than from running airports!
It has been estimated that just taxing aviation fuel at half the rate of motor vehicles could reduce the 400 million passengers at UK airports in 2020 to 344 million. Together with VAT on air travel would bring this down to 268 million. Then trebling airport charges and abolishing duty free would reduce demand further to 236 million in 2020.
This is still an increase of nearly 50% in 20 years but much more manageable and less damaging. It would also provide £6 billion every single year for the government to spend on public services.
This article is based on two recent publications:
(1) Tax Free Aviation, a paper by Brendon Sewill.
It was published by the Aviation Environment Federation with the support of Friends of the Earth, Transport 2000, Gatwick Area Conservation Campaign, HACAN-Clear Skies and North West Essex & East Herts Preservation Association.
It is available free from
Aviation Environment Federation,
Sir John Lyon House, 5 High Timber Street,
LONDON EC4V 3NS
020 7329 8159
Fax 020 7329 8160
E-mail info@aef.org.uk
Website www.aef.org.uk
(2) The Plane Truth: Aviation and the Environment, by Professor John Whitelegg and Nick Williams.
It was published by Transport 2000 Trust and the Ashden Trust.
It is available for £3 from
Transport 2000 Trust, The Impact Centre,
12-18 Hoxton Street, LONDON N1 6NG
020 7613 0743
or from the website of the Airfield Environment Trust www.aet.org.uk.
Department of the Environment, Transport and the Regions (2000) The Future of Aviation, The Government's consultation document on air transport policy.
Hurdle, D (1990) London's Airports London Boroughs Association.
Royal Commission on Environmental Pollution (1995) 18th report, Transport and the Environment Oxford University Press.
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