It’s time to put an end to aviation’s tax privilege
The aviation sector unfairly benefits from enormous tax breaks. And that has huge climate change implications.
Which is the odd one out: food; medicines; business class flight tickets to New York, or mobility aids for the elderly? The astute will have recognised that this is a VAT question. Incredibly, the odd one out is mobility aids for the elderly, on which pensioners have to pay 5% VAT when, for example, stairlifts are installed. Food, medicine and business class flight tickets are zero-rated. This is just one example of aviation’s enormous tax privileges, but there is another huge one: no fuel duty is charged on jet fuel, meaning that the last time you filled up a car with petrol or diesel, you paid more fuel duty than any airline has ever paid.
The principle of charging VAT on anything but essentials is well established, but completely ignored when it comes to UK air travel. Odd considering VAT is charged on domestic tickets in 23 out of 27 EU states, Australia, Canada, India and New Zealand. Air passenger duty is applied to all flight tickets, but the revenue from this comes nowhere close to what VAT revenues at 20% would bring in.
Similarly, all other fuel types attract fuel duty. The Chancellor could apply a duty to jet fuel at any budget but has repeatedly chosen not to do so. Odd considering the EU has proposed applying fuel duty at an equivalent rate of 32 pence per litre. The polluter pays principle is being wilfully ignored.
Aviation’s tax privileges date back to just after the Second World War, and stem from the Chicago Convention which was, in the words of ICAO, “established to promote cooperation and create and preserve friendship and understanding among the nations and peoples of the world”.
The context is completely understandable. The world had just stopped trying to kill each other. The more people that could see and experience different cultures, the less chance there was of a third world war. The thinking of the time was simple: let’s reduce all the barriers to flying as much as possible, and zero taxation was one of the outcomes. A third world war didn’t happen, so in that respect the ICAO has done a sterling job.
But the context is different now. Instead of war, climate change is the biggest threat to the world’s peace and security. ‘Solving’ climate change could well be humanity’s greatest ever achievement.
As any good economist will tell you, increasing the price of a good will encourage consumers to look for other options. Increasing the price of fossil jet fuel will encourage airlines to immediately look for efficiencies: fly in straight lines, or reduce onboard weight. They will also start looking at alternatives: sustainable aviation fuel in the short-term, and electric and hydrogen planes in the longer term. In short, they would contribute less to climate change.
Airlines will tell you that the sector’s taxation privileges have to stay, but they have to say that - airline CEOs and CFOs have a fiduciary duty to their shareholders to maximise profits.
But just because they say that, does not mean it’s right. According to John Locke, government exists to secure and protect the rights of people from threats. Climate change is the biggest threat to humanity’s security ever. It is becoming increasingly unacceptable for such a polluting industry to continue benefiting from what are effectively fossil fuel subsidies.
It is time to put an end to aviation’s taxation privileges.
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