Taxes on domestic flights could be raised to help fill the black hole in government finances, it has emerged.
Finance experts suggest the move would also fit a Labour agenda to drive people away from flying between UK cities to cut greenhouse gas emissions.
Air Passenger Duty (APD) on domestic flight economy class was cut by the Tories from £13 to £6.50 in April 2023, before being put back up to £7 in April this year.
Illustrative figures suggest that if APD was increased by £1 for all passengers in economy class, it would raise an additional £130m in 2025/26.
Consequently, taking it back up to the original figure of £13 would increase takings from the flight tax up by £780m year.
The flight tax applies to travellers aged 16 and upwards and is levied on both legs of a journey in the UK, which means it quickly pushes up the cost of domestic air travel.
However, a new analysis by tax experts RSM say APD could be raised further by the Chancellor Rachel Reeves in her October Budget.
A paper published by RSM’s Manager for Private Client Services, Miruna Constantin, said: “The Labour government is staring down the £22bn deficit and will no doubt have been looking at various solutions that could help raise funds to plug the hole in the finances.”
Looking ahead, Ms Constantin said: “The chancellor has a difficult challenge ahead of identifying further tax raising measures that won’t see her and the wider government’s popularity plunge as a result.
“One of the more substantial tax levers that remains available to Rachel Reeves is Air Passenger Duty (APD). Perhaps unsurprisingly, APD receipts have rebounded strongly following the pandemic to record levels, generating revenues of over £3.8bn in the year to March 31, 2024.
“In the first quarter of the current financial year, APD has generated £1bn, the highest first quarter receipts on record.
“However, a key feature of Labour’s plans is to focus on net zero targets and to ‘decarbonise transport’. Increases in air travel could be seen as moving things in the wrong direction, so perhaps we could see Rachel Reeves look at increasing APD to disincentivise flying, encouraging other means of transport instead.
She continued: “In particular, domestic flights within the UK could come under focus. If APD were to be increased, any additional funds might be earmarked to help encourage more environmentally friendly transport options, or to help prevent future strike action.”
In theory, the money raised might be used to improve rail services, perhaps covering the cost of recent pay awards, and public transport.
“There is clearly scope for improvement in the national rail system as, in Q4 of 2023/24, close to a third of all trains were delayed for a whopping total of 3.68m minutes, or, seven years. It will be hoped of course that these figures will improve following the recent pay settlement agreement.”
RSM said illustrative figures suggest that if APD was increased by £1 for all passengers in economy class, it would raise an additional £130m in 2025/26.
Ms Constantin said: “Whilst the potential additional tax revenues may be relatively trivial in the context of the Treasury’s overall tax receipts, it’s not uncommon for chancellors to have to identify a few hundred million here or there to ensure the books are balanced.
“An increase to APD rates may provide Rachel Reeves with some much-needed wriggle room to manoeuvre.”
