Skift Take

Tourists will be footing the higher rate with a new "ultra" long-haul tax as part of plans to reduce emissions just as international travel is starting to ramp back up. Still, many businesses will welcome the reduction in passenger taxes on short-haul flights.

The UK government is set to increase its aviation tax, known as an air passenger duty,” on long-haul flights  — seen as a highly political move ahead of hosting the COP26 United Nations Climate Change Conference next week.

“We’re making changes to reduce carbon emissions from aviation. Most emissions come from international, rather than domestic, aviation, so we’re introducing a new ultra-long haul band … with an economy rate of £91 ($125),” said Chancellor of the Exchequer Rishi Sunak on Wednesday.

But the move may been seen as a head-scratcher to travel industry leaders since the tax comes as destinations are increasingly opening up to international travelers and airlines are still reeling from the loss of revenue from lucrative long-haul flights since the start of the pandemic.

However, the UK will reduce the passenger tax on domestic short-haul flights. It’s a contrarian development to many of the UK’s European neighbors, which want to cut back on the number of closer-to-home flights taken. A law passed earlier this year in France, for example, bans flights if the route can be operated by a train in under two hours. It prompted Air France to cut back its network. Public sector organizations and private companies are also beginning to impose similar bans within their travel programs.

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The so-called air passenger duty is currently charged in two bands, to destinations below 2,000 miles and more than 2,000 miles. Business-class passengers pay more, and the maximum tax is set to rise to $764 per flight from April, 2022.

From April 2023, the government will introduce three distance bands: 0-2,000 miles, 2,000-5,500 miles, and the new ultra long-haul band of above 5,500 miles.

The reason for the short-haul reduction is that the government wants to encourage travel, in particular between the north and south, as part of its “leveling up” program designed to bridge the wealth gap between various regions.

“This will help cut the cost of living, with nine million passengers seeing their duty cut by half,” Sunak said. “It is a boost to regional airports like Aberdeen, Belfast, Inverness and Southampton.”

The UK’s Business Travel Association said it welcomed the reassessment of the domestic tax, but said the ultra long-haul classification would unfairly impact business travelers at a key point in the recovery of the economy.

“The government said this was a Budget bringing in a new wave of optimism and yet business travelers will be heavily taxed to go to crucial destinations such as Singapore, Hong Kong and Australia,” said CEO Clive Wratten. “We are calling on the government to ring-fence at least 75 percent of Air Passenger Duty for sustainable initiatives to help our sector deliver on its “Jet Zero” commitments. This must be about building a sustainable future not just grabbing taxes.”

The government’s March report said: “This would align Air Passenger Duty more closely with our environmental objectives, and ensure that the overall proposed package of reforms balances our domestic connectivity and environmental goals, as well as maintaining the sector’s contribution to the public finances and our public services.”

Business Opportunities

It seems many UK businesses, as well as airlines, have just dodged a bullet. But that could well change in next year’s budget announcement. That’s because there is growing support for a frequent flyer tax from the UK public.

In March 2021, a government aviation tax reform consultation revealed that the Committee on Climate Change, the UK’s independent adviser on tackling climate change, and several environmental stakeholders, suggested it introduce a frequent flyer levy to tackle the environmental impacts of flying in an equitable way.

It would heavily penalize business travelers, but is perceived as a great idea by the public, according to a poll that saw 89 percent support such a policy. The public’s views on how to cut emissions: results from the climate calculator was published earlier this month by think tank Demos and the World Wide Fund for Nature.

That 89 percent was made up of 62 percent who preferred higher costs for frequent fliers. This could entail zero tax on the first return flight and at least 10 percent on the second, 20 percent on the third, 30 percent on the fourth and so on. Some 27 percent preferred a flat levy for all fliers of at least 10 percent.

“The fair solution is obvious: those that fly more should pay more,” said Rory Boland, editor of Which? Travel in a recent interview.

However, one expert has said that a frequent flyer scheme would be difficult to enforce.

“A frequent flyer tax where charged on individual traveller tickets at point of sale is unlikely to work. The collections, storage and sharing of the data will be prohibitively complex and expensive,” said Daniel Raine, CEO and founder of Unlocked Data. “The government could look to shift the onus for tracking and collecting business travel frequent flyer tax premiums to employers rather than airlines, individuals or a central governmental agency.”

But he added that the tax may appeal to other countries. “There is growing scrutiny on business travel tax post-pandemic as countries look to close the ‘tax-gap’ in their economies and employers allow work from anywhere practices that potentially expose corporates to tax risk,” he added.

Business travel associations are already up in arms over the latest proposed increases in airport passenger fees. London’s Heathrow Airport needs to recoup its pandemic losses and has been given the go ahead to raise its levy — which airlines will likely pass onto passengers — by 50 percent. It originally wanted to double it, compared to 2020 levels, but that was rejected.

“Corporate buyers and even business travelers themselves are facing pressure to minimize travel costs,” said Suzanne Neufang, CEO of the Global Business Travel Association. “Companies are scrutinizing all trips for the return on investment. A significant cost increase will likely impact the number of trips approved and the volume of trips taken which has the potential to depress travel further.”

In a first, it has united with the UK’s Business Travel Association and Institute of Travel Management to call on regulator the Civil Aviation Authority to lower the increase.

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Tags: air france, carbon emissions, climate change, gbta, sustainability, taxes, travel management, UK government

Photo credit: Passengers will pay more tax on long-haul flights to destinations like Japan. Justin Lim / Unsplash

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