LONDON – The UK government has announced an increase in Air Passenger Duty (APD) rates for the tax year 2025 to 2026, as part of the latest budget measures unveiled at the Spring Budget 2024. The move aims to align APD receipts more closely with inflation and ensure that airlines and aircraft operators continue to contribute fairly to public finances.
Policy Objective
The increase in APD rates is designed to address the recent disparity between forecast and actual Retail Price Index (RPI) inflation, which has led to a real-terms decrease in APD rates. By adjusting the rates, the government seeks to maintain the financial contribution of the aviation industry to the public purse.
Background
APD rates for the year 2025 to 2026 were initially announced at the Spring Budget 2024 to provide the industry with ample notice of the changes. APD is one of the few taxes where rates are set more than a year in advance, using forecast RPI.
Detailed Proposal
The new APD rates will come into effect on 1 April 2025. The legislation to amend section 30 of the Finance Act 1994 will be introduced in the Finance Bill 2024-25. The revised rates are as follows:
Bands (distance in miles from London) | Reduced rate (lowest class of travel) | Standard rate (other than the lowest class of travel) | Higher rate (2) |
Domestic band | £7 | £14 | £84 |
Band A (0 to 2,000 miles) | £13 | £28 | £84 |
Band B (2,001 to 5,500 miles) | £90 | £216 | £647 |
Band C (over 5,500 miles) | £94 | £224 | £673 |
(1) If any class of travel provides a seat pitch in excess of 1.016 metres (40 inches), the standard rate is the minimum rate that applies. (2) The higher rate applies to flights aboard aircraft of 20 tonnes and above with fewer than 19 seats.
Impact of the Measure
The Office for Budget Responsibility has certified the following projected increases in the Exchequer’s revenue over the next five years, starting from 2024 to 2025:
- 2024 to 2025: No increase
- 2025 to 2026: £100 million
- 2026 to 2027: £105 million
- 2027 to 2028: £110 million
- 2028 to 2029: £115 million
- 2029 to 2030: £125 million
These figures indicate a steady and significant upward trend in the Exchequer’s revenue from the Air Passenger Duty, with the increase growing by £5 to £10 million each year.
In addition, the Exchequer has estimated that since the APD is a tax on airlines and aircraft operators, it is anticipated that these costs will be passed on to consumers through increased airfares. Individuals travelling in non-economy class and on larger, more luxurious private jets may also see a more substantial increase in ticket prices.
Curiously, though, the Exchequer states that the measure will have a negligible impact on the environment and an insignificant impact on macroeconomic input.
Stakeholder Reactions
Tim Alderslade, Chief Executive of AirlinesUK, expressed concern over the increase in APD rates. “Air Passenger Duty, however, already makes the UK less competitive and further increases in addition to rises in other business levies will impact growth, directly hitting the pockets of ordinary travellers and making it harder for UK airlines to put on new routes. We need a revised and joined-up approach to the UK’s strategically vital aviation sector.”
On the other hand, Transport & Environment UK welcomed the move. “Air Passenger Duty being raised is the right choice. The cost predominantly falls on those with the broadest shoulders and those who fly the most. That combined with the sharp increase applied to #privatejet flights, the UK’s aviation taxes will better reflect the huge environmental cost of flying but she’ll still need to go further to address its true cost. The Chancellor has taken an important step in accepting the responsibility the government has in safeguarding the climate for the country’s future.”
The government’s decision to increase APD rates reflects a commitment to maintaining the financial contribution of the aviation industry while ensuring that the tax system keeps pace with inflation. However, the move has sparked debate over its potential impact on the competitiveness of the UK’s aviation sector and its role in addressing environmental concerns.
