Wednesday, December 25, 2024

What does the Air Passenger Duty increase mean for cheap flights?

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The UK government has announced an increase in air passenger duty (APD) in the autumn Budget – with passengers paying £2 more for the cheapest seats and 50 per cent more to fly on private jets.

Chancellor of the Exchequer, Rachel Reeves announced the rise in flight tax on Wednesday (30 October) in the latest hit to holidaymakers.

APD rates, the tax that passengers aged 16 and over must pay when flying from most UK airports, increase each year with the forecast Retail Price Index (RPI) and are adjusted in line with inflation.

The chancellor said that APD had “not kept up with inflation in recent years”.

Although the next rise will be introduced from 1 April 2025, raised rates announced in yesterday’s Budget – £15 for short-haul international flights – will come into effect from 1 April 2026.

Here’s everything plane passengers need to know.

What is air passenger duty (APD)?

APD is a tax on airlines and aircraft operators automatically charged for passengers flying from a United Kingdom or Isle of Man airport to both domestic and international destinations.

The duty was introduced in 1994 by Chancellor Kenneth Clarke to offset the environmental impact of air travel and charged by travel distance – initially £5 per economy passenger for European flights and £10 for long-haul flights.

Rates are determined by two factors: cabin class and the destination of the flight.

The lowest or economy class seats (less than 40 inches from the front of one seat to the front of the other) pay a reduced rate.

In anything but basic economy, a higher rate is payable – and all passengers aged two or over must pay it.

Planes weighing over 20 tonnes which are equipped to carry fewer than 19 passengers – private jets – pay the highest APD rate.

As for the four destination bands, the domestic band applies to travel in England, Scotland, Wales and Northern Ireland only.

International bands charge based on the distance flown from London to the destination’s capital city – Band A (0 to 2,000 miles) includes all destinations in the EU and EEA, Band B (2,001 to 5,500 miles) adds holiday hotspots such as Egypt and Barbados and Band C (over 5,500 miles) includes anywhere else such as Australia and New Zealand.

What is the current rate of air passenger duty?

These are the current rates for APD until 31 March 2025:

  • Domestic: reduced rate £7, standard rate £14, higher rate £78
  • Band A: reduced rate £13, standard rate £26, higher rate £78
  • Band B: reduced rate £88, standard rate £194, higher rate £581
  • Band C: reduced rate £92, standard rate £202, higher rate £607

What will air passenger duty rise to in 2025?

In the first rise, from 1 April 2025 APD rates will be:

  • Domestic: reduced rate £7, standard rate £14, higher rate £84
  • Band A: reduced rate £13, standard rate £28, higher rate £84
  • Band B: reduced rate £90, standard rate £216, higher rate £647
  • Band C: reduced rate £94, standard rate £224, higher rate £673

What did the autumn Budget do to APD rates?

As announced in the budget, APD rates from 1 April 2026 will add £2 to the price of economy tickets for passengers on short-haul international flights.

From 1 April 2026, APD rates will reflect the following:

  • Domestic: reduced rate £8, standard rate £16, higher rate £142
  • Band A: reduced rate £15, standard rate £32, higher rate £142
  • Band B: reduced rate £102, standard rate £244, higher rate £1,097
  • Band C: reduced rate £106, standard rate £253, higher rate £1,141

The new legislation will be introduced in Finance Bill 2024-25 to amend section 30 of the Finance Act 1994 and intends to “ensure that airlines and other aircraft operators continue to make a fair contribution to the public finances”.

What does the APD rise mean for passengers?

APD is paid by passengers automatically upon booking with air passengers in premium cabins paying more per seat.

The government said its understanding is that “airlines and aircraft operators ordinarily pass the cost of APD through to the consumer in prices” but added this is a “commercial decision for the airline or operator”.

It said: “This measure may therefore impact individuals who travel by air, who may see an increase in airfares.”

Do private jets pay air passenger duty?

Yes, private jets pay the highest rates for air passenger duty.

Private jet users will be the primarily impacted passengers with a 50 per cent rise in APD from 2026.

“Those individuals who travel in a non-economy class and by larger, more luxurious private jets may see a bigger increase,” said the government.

The most expensive rate for private jet flyers will increase from £607 to £673 in 2025 and cost £1,141 per passenger from April 2026.

What does this mean for cheap flights?

Following the changes, budget fares from the UK to Europe with airlines such as Ryanair and easyJet would now see the airline pay the majority of a £20 economy ticket in APD to HMRC.

Ryanair CEO Michael O’Leary said at an industry conference in Brussels earlier this month that flights may axed next summer if aviation taxes were raised in the Budget.

At the Brussels meeting, Mr O’Leary called APD a “penal tax on the poor” and said an increase in APD, currently £7 for internal flights, would mean a decrease in customer demand and a “cut in capacity”.

What do airlines say?

The new measure is expected to have a small impact on around 600 airlines and aircraft operators, say the government.

Tim Alderslade, CEO of Airlines UK, the industry body representing UK-registered carriers, said: “Air Passenger Duty […] 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.”

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