Air Passenger Duty may go up in Reeves’ budget – could the ‘Inverness Immunity’ come to an end?
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A week from now, the chancellor will be rehearsing for her first budget. With rises in the most significant taxes – such as income tax and VAT – ruled out, Air Passenger Duty (APD) looks ripe for an increase.
This tax on flying applies to travellers flying from most UK airports. The rate depends on two things:
- the class you travel in – cheap seats or something more comfortable.
- the final destination on your ticket, broadly UK, Europe/North Africa, long-haul and ultra-long-haul.
Age is a factor: for basic economy, under-16s avoid tax, but in premium classes only the under-twos go free.
APD currently ranges from £7 for a domestic flight in economy class to £202 in a premium cabin to a far-flung destination in Asia, Australasia or Latin America. Private jets are much more heavily taxed.
The majority of travellers pay £13 for a hop to Europe or North Africa.
The last Conservative budget set rates for April 2025 to increase by £2 for intercontinental economy passenger as well as premium travellers within Europe. Sharper rises will apply for long-haul premium passengers, taking the top rate to £224. A family of four travelling to Bangkok, Hong Kong or Singapore from 1 April next year will pay almost £900 to the government for the right to leave the country – or possibly more, if Rachel Reeves decides to target the traveller.
The Office for Budget Responsibility says: “In 2024-25 we estimate that APD will raise £4.5 billion. That represents 0.4 per cent of all receipts and is equivalent to around £150 per household and 0.2 per cent of national income.”
Extracting, say, an additional £1.5bn from passengers must be tempting for the Treasury. Air Passenger Duty has been popular with every chancellor since it was invented three decades ago by the Conservative, Ken Clarke, for three good reasons.
- Easy to collect (the airlines simply send a cheque each month) and difficult to avoid.
- Hidden in the headline air fare – and for business travellers working for big firms it won’t even be noticed.
- Unlike many taxes, nearly half the people who pay APD are overseas travellers and therefore don’t vote in British elections.
Yet any tax increase has consequences. It’s not necessarily a good idea to tax the traveller until – in the words of earlier Labour chancellor Denis Healey – the pips squeak. In a bid to help Ms Reeves and her officials as they decide their next move, I shall set out the possible effects.
1. Deterring inbound visitors
Overseas tourists cannot vote in our elections but they can vote with their feet – and go somewhere else if they feel fares to and from the UK are too high. Inbound tourism is a huge benefit to any nation – including to tax revenue, with no VAT to collect on their hotel stays, theatre visits and restaurant meals.
2. Premium economy emptying
Recent rises in APD have been loaded on to premium travellers – rates have increased much faster than inflation. These apply to every ticket that comes with a seat pitch (distance from the front of one seat to the front of the next) of at least 40 inches. The people who are currently paying £194 in tax for every member of their family for a trip to Florida have their limits on how much extra they will pay for premium economy.
A senior aviation figure says: “A lot of the bounce-back in premium cabin occupancy has actually been in leisure travellers, who are spending their own money. The idea that raising more on the backs of business travellers is a ‘victimless crime’ because it becomes a decimal point in some bank’s travel budget is simply not the case.”
I sometimes pay extra for premium economy – but only when flying back to the UK, when no tax applies. I predict the premium economy cabins could start looking emptier, with a big squeeze as passengers move back to the cheap seats.
3. More avoidance of high rates of APD
On my last two transatlantic trips, I have bought a cheap flight to Dublin and booked a separate ticket to the US and Canada respectively, saving a handy £75 in Air Passenger Duty each time. The Irish airport also has pre-clearance of American border formalities, meaning you arrive in the US as a domestic passenger – potentially saving an hour or two of waiting in line. Going to Asia, Africa and Australia, Turkish Airlines is a good bet: stay at least 24 hours in Turkey’s biggest city before your onward long-haul flight, and you save enough tax to pay for your stopover hotel.
The higher APD goes, the more of us will be using such perfectly legal tricks to avoid or reduce the tax.
I can, though, offer one tax-raising idea: scrap the “Inverness Immunity”. Passengers flying from airports in the Scottish Highlands and Islands region are exempt from Air Passenger Duty – even if they are heading in first class to the ends of the earth.
Everyday, some people fly to Inverness not to enjoy the many attractions of the city and region – but to turn around and fly away on KLM via Amsterdam or British Airways via Heathrow. Close this loophole, and the environment – as well as the Treasury – will benefit.
