Tuesday, 5 February 2013

Carolyn McCall doth protest too much

It is reported in the Times this morning that the chief executives of easyJet, Ryanair and IAG (BA’s parent) described air passenger duty (APD) as ‘one of the country’s three most damaging taxes’ along with fuel duty and corporation tax. The chief executives involved, Carolyn McCall, Michael O’Leary and Willie Walsh, can be forgiven for opposing corporation tax as it is a part of keeping pressure on the government not to raise tax on business too far. This is the normal tension between government and business and a sensible balance should be struck. Fuel duty and APD is much more interesting and complex.

The complaint against fuel duty shines the spotlight on senior executives using blinkered short-term commercial advantage to block the transformation necessary to wean the economy off fossil fuel. It is particularly interesting that it is the airlines bosses making the complaint. Ever since the implementation of the Chicago Convention of 1944, governments have been prevented from taxing fuel carried aboard aircraft. This means no government would dare to tax aviation fuel for fear of the consequences for the airlines and airports operating within their jurisdiction. The end result is that over the last 69 years we have had tax-free aviation fuel and amazingly this dispensation continues. If this was passed onto passengers there is case to argue for continuing with tax-free fuel, although not a case I would support. The problem is that tax-free aviation fuel locks the industry in an old 20th century model. It is cheaper for airlines to burn thousands and tons of cheap fuel than make the transformation to 21st century aviation. There is a better industry waiting to launch when the commercial case adds up, but in a system of tax-free aviation fuel the numbers do not work.

That leaves us with the last of the ‘three most damaging taxes’ APD. This tax is high simply because the government’s hands are tied, preventing it from applying the tax where it should be applied, on fuel. APD does not act as a lever to transform the industry; it is a tax on passengers. I would support Carolyn McCall, Michael O’Leary and Willie Walsh if they were to campaign in favour of changing the out-dated Chicago Convention to bring in tax for aviation fuel instead of APD. That really would be a game changer. If you want to know how, read on…

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