Air Passenger Duty and rent seeking

The rent-seekers have decided to keep up their attack on Air Passenger Duty, with the Faux Libs at City AM are happily regurgitating as Gospel truth:

The annual £3bn APD take is significant, but robust evidence now exists which highlights that a reduction to the tax would be revenue neutral. Independent PwC research has shown that scrapping the tax would stimulate the creation of 60,000 jobs and lead to £16bn in additional growth, and therefore be self-financing.

APD is first and foremost an economic matter. However, there is also a question of fairness that should be considered. We feel passionately that, for families and for ordinary travellers, the tax is regressive and damaging.

Families receive no “break” on child fares as they do for other goods and services, and a family of four now pays an average of £52 in APD to travel to short-haul destinations, and £284 for long-haul destinations.

We know that Heathrow and other London airports are running at full capacity, demand for slots vastly exceeds the availability and the airlines ration flights by bumping up prices accordingly. Their ticket prices have nothing to do with their actual costs, a large part of it is scarcity value i.e. rent.

So as long as the APD merely takes a chunk of the rent element of ticket prices, no harm done, it does not discourage activity or investment in the slightest. Or else those airports would not be running at full capacity, would they? The same does not necessarily apply to regional airports.

But that £3 billion figure does not reconcile with the headlines figures he bandies about ("£284 for long-haul desinations"). According to Wiki, there are 240 million passenger movements in the UK each year, i.e. 120 million get on a plane and 120 million get off. If APD were a straight per-passenger duty, it would be £25 per person per round trip.

A per passenger duty is a stupid idea of course, a per plane tax is better and the best designed tax would only claw back some of the rent element, so it would be set differently at different airports.

The rent element is highest at Heathrow and other London airports. Going by Wiki's figures, to raise £3 billion, all you would need is a £4,000 tax on each aircraft movement at Heathrow and (say) £2,000 at the other London airports (Gatwick, Stansted, Luton and City). Flights to or from any other UK airport would be completely tax free.

So a round trip to and from Heathrow, assuming average 150 passengers per plane, would work out at £53 per passenger (£4,000/150 x 2) per round trip. There is absolutely no need to distinguish between short and long haul flights, the value is in the slot, and if this encourages airlines to use Heathrow only for long-haul, well so much the better. (Further, aircraft noise is a nuisance, but why would you care whether the airliner roaring overhead is headed to Manchester or Manchuria?)

This would completely demolish their Faux Lib wailing, and they can chuck their stupid PwC 'research' in the bin. IF such a tax did have a negative impact on economic activity, then we can easily measure this - are these airports still running at full capacity? IF yes, then clearly the number of flights has not gone down, so the tax has had no negative impact. AND the chances are that other airports would move closer to full capacity.

Reality check: Heathrow airport charges the airlines about £20 per passenger (£40 per round trip) and this raises £1.5 billion income, double that and there's your £3 billion.