What Flybe's green tax holiday tells us about government priorities

14 January 2020, 09:01 | Updated: 15 January 2020, 07:39

There is more than a hint of irony in the fact that the government will defer a green tax bill to help save an airline.

That is what has been agreed by ministers as part of a deal to avert the prospect of Flybe's collapse.

We know very little about the terms yet - with an apparent government loan on commercial terms yet to be finalised.

But what we do know is that payment of a substantial part of its outstanding air passenger duty (APD) bill can be delayed on the condition Flybe's three shareholders, which include Virgin Atlantic and Stobart Group, inject fresh funds - tens of millions.

Such a move is controversial for several reasons - not least the message it sends on curbing emissions.

What is APD?

Air passenger duty was introduced by the Conservative government in 1994 to contribute to the environmental costs of air travel though there are some exceptions for Northern Ireland and the Scottish Highlands.

Those flying from the UK to short-haul destinations have always paid less than globetrotters, with the tax on tickets - built in to the cost of a flight - rising from an initial £5 in 1994 to a maximum of £26 today. Economy class passengers pay £13.

The limit for long-haul (flights over 2,000 miles) is £172 - £78 in economy.

:: Why Flybe is a crucial cog in UK transport network

Private jet passengers pay substantially more - up to £515.

How much does it raise?

The Office for Budget Responsibility expects APD to raise £3.7bn in the current financial year. It has never been clear whether the funds, collected by the Treasury, go to help offset emissions or other green projects.

Why is Flybe so on the hook for APD?

The company's core operations are UK domestic flights. Because APD is charged at the airport of departure, passengers pay it for the outbound AND return journeys.

Is government APD relief to Flybe unfair?

There are EU rules covering government intervention to support a company.

Ministers would have to determine if the state aid rules apply in this case as it covers a UK-derived tax.

Willie Walsh, the boss of British Airways' parent firm IAG, has complained that taxpayer support for Flybe amounts to a misuse of public funds.

Why not just scrap APD?

The government could move to get around any concerns around a potential advantage for Flybe by scrapping APD for domestic flights or cutting the rates across the board.

It has chosen to examine the former as part of a commitment to review regional airport connectivity.

Airlines complain that the cost of APD to passengers leaving the UK is prohibitive and the most expensive equivalent tax within the EU as the country looks beyond the bloc for a new trading future after Brexit.

Save Flybe whatever the cost?

The government let Thomas Cook, Monarch and others fall by the wayside. There is plenty of aviation competition for international holidays and flights.

Flybe is a much smaller company with domestic operations that have evidently deemed too important to fail - flights that are likely critical to many MPs travelling between London and their constituencies.

But surely APD is crucial to put people off flying?

An original aim of APD was to make consumers think twice before boarding an aircraft.

Aviation accounts for 2% of all global emissions but its contribution has surged as air travel grows in developing economies - especially China.

The government must consider whether the sector - and many struggling regional airports - need support to survive at the expense of its commitments to reduce emissions.