Air passenger duty (APD) is a duty chargeable per passenger flying from UK airports to domestic and international destinations. APD follows a band structure, where duty rates vary by destination and by class of travel. Receipts are payable to HMRC by the operator of the aircraft 29 days (usually one calendar month) after the end of the accounting period, so, for example, May receipts will relate to flights taken in April. The Government updates the rates annually. They come into effect on 1 April each year.

APD rates from 1 April 2018

Source: HMRC

In our latest forecast, we expect APD to raise £3.5 billion in 2018-19. That would represent 0.5 per cent of all receipts and is equivalent to just over £120 per household and 0.2 per cent of national income. Despite the higher rates charged for travel in classes above the lowest one available, the majority of receipts are generated from those travelling in the lowest class. This reflects the fact that almost 95 per cent of the more than 110 million passenger flights taken each year involve travel in a class that is liable to the reduced rate.

The Scotland Act 2016 includes provisions for the devolution of APD to Scotland. The timing of devolution has yet to be agreed between the Treasury and the Scottish Government. For more information on Scottish APD see our Devolved tax and spending forecasts publication.

  • Latest forecast

    Our latest fiscal forecast was published in March 2018. APD receipts stood at £3.2 billion in 2016-17 and are forecast to rise steadily to £4.1 billion in 2022-23. That rise is explained by continued growth in air passenger numbers, as well as rising duty rates. In general, the Government has stated that the main rates of air passenger duty will be uprated each year in line with RPI inflation and rounded to the nearest £1. However, the Government has announced that Band A rates will be frozen in 2017-18 and 2018-19.

    Expand to read the extract from our March 2018 EFO

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  • Latest monthly data

    APD receipts are generally higher over the summer months reflecting the seasonality of air travel. Monthly volatility can reflect several factors, including one-off effects (such as the impact of the Icelandic volcanic ash-cloud in 2010) and timing effects (such as whether Easter falls in March or April each year and the months in which payment dates fall). The monthly pattern of receipts was more volatile in 2017-18, reflecting an HMRC accounting system change.

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  • Forecast methodology

    Forecast Process

    The OBR commissions forecasts of air passenger duty (APD) receipts from HM Revenue and Customs for each fiscal event. The forecasts start by generating an in-year estimate for receipts in the current year, then uses a model to forecast growth in receipts from that starting point. We provide HMRC with economic forecasts that are used to generate the tax forecasts. These are scrutinised in a challenge process that typically involves two rounds of meetings where HMRC analysts present forecasts to the Budget Responsibility Committee and OBR staff. This process allows the BRC to refine the assumptions and judgements that underpin the forecasts before they are published in our Economic and fiscal outlooks.

    Forecasting model

    APD receipts are estimated by multiplying the number of passengers in each band by the corresponding duty rate.

    The number of air passengers in each destination band is forecast using an econometric model based on past trends and the relationship with real GDP growth.

    The model follows the Government’s default indexation assumption that duty rates in the future (beyond those already specified) will increase each financial year in line with our RPI forecast, which is then rounded to the nearest £1. In general, this means that the Band A reduced rate remains at £13 over the whole forecast period as our forecast for RPI inflation (beyond the years in which rates are already announced) is generally lower than the 3.8 per cent needed to ‘tip’ the rounding up to £14.

    Main forecast determinants

    The main determinants of our APD forecast are those related to the tax base and those that are used by the Government in setting parameters of the tax system. See the ready reckoners section below for more information on the effects of these determinants on APD receipts.

    Main forecast judgements

    The most important judgements in our APD forecast are related to the economy forecast that underpins it – the most important being real GDP growth, which is used to proxy growth in demand for air travel. Alongside those, we need to make a number of other forecast judgements. These include:

    • In-year estimate – Our estimate for APD receipts in the current year is determined by performance of receipts year-to-date, developments in determinants of the tax base and any other indications from HMRC’s receipts monitoring. The in-year estimate determines the base year from which we use our model to forecast receipts growth.
    • The relationship between economic activity and air travel– the extent to which air travel is affected by changes in household income and business activity (which are proxied by real GDP) is an important assumption in the forecast. We estimate these relationships based on historical data.

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  • Previous forecasts

    Between 2010 and 2013, our forecasts tended to be revised down, mainly due to policy changes. In 2013, we introduced the current forecast model, which links the growth in passenger numbers to our forecast for real GDP growth. Since 2014, our forecasts have been subject to smaller revisions, partly reflecting fewer changes to the tax regime. The change to the band structure from 2015-16 onwards reduced our forecast by around £0.2 billion a year – see the Policy costings section below for more detail.

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  • Policy measures

    Since our first forecast in June 2010, governments have announced 5 policy measures affecting our forecast for APD. The original costings for these measures are contained in our policy measures database and were described briefly in the Treasury’s relevant Policy costings document. For measures announced since December 2014, the uncertainty ranking that we assigned to each is set out in a separate database. For those deemed ‘high’ or ‘very high’ uncertainty, the rationale for that ranking was set out in Annex A of the relevant Economic and fiscal outlook.

    APD is set to be devolved to the Scottish Parliament and replaced with an ‘air departure tax’ in Scotland, but the precise timing of devolution is uncertain. For more information see our webpages on fiscal devolution.

    Key APD policy changes since 2010 have included:

    • In Autumn Statement 2011, all direct flights from Northern Ireland to long haul destinations were charged at the Band A rate of tax, reducing receipts by less than £10 million over the forecast period. In January 2013, the rate for direct long-haul flights was devolved and set to zero by the Northern Ireland Executive
    • In Autumn Statement 2011, new premium rates of APD (then set at twice the standard rate in each distance band) were introduced for all flights making use of aircraft with a weight over 20 tonnes and fewer than 19 seats. The measure was expected to increase receipts by less than £10 million a year over the forecast period.
    • In Budget 2014, the number of APD bands was reduced from four to two, with the existing bands C and D abolished with effect from 1 April 2015. The new band B covers all passengers with a final destination of more than 2,000 miles from London and was charged at the existing band B rate in 2015-16. This measure reduced receipts by around £0.2 billion a year from 2015-16 onwards.
    • In Autumn Statement 2014, the APD exemption for children under 2 years of age was extended to all children under 12 years of age (for those travelling in the lowest class of seat, typically economy class), with effect from 1 May 2015. Children under 16 years of age were exempted from 1 March 2016. This measure reduced receipts by less than £0.1 billion a year from 2016-17 onwards.

    On several occasions, the Government has pre-announced the main rates of APD in order to ‘give certainty to the airline industry’. APD rates have currently been set until 2018-19. These rates are in line with the uprating assumptions we were asked to assume in our March 2018 forecast and so the measure has no impact on that forecast.

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  • Ready reckoners

    ‘Ready reckoners’ show how our fiscal forecasts could be affected by changes in selected economic determinants. They are stylised quantifications that reflect the typical impact of changes in economic variables on receipts and spending. These estimates are specific to our March 2017 forecast and we would expect them to become outdated over time, as the economy and public finances, and the policy setting, continue to evolve. They are subject to uncertainty because they are based on models that draw on historical relationships or simulations of policy settings. More information can be found in the ‘Tax and spending ready reckoners’ spreadsheet we published alongside our 2017 Fiscal risks report.

    The table below shows that:

    • 1 per cent higher real GDP growth in 2018-19 would boost APD receipts by less than £50 million  a year, reflecting higher demand for air travel; and
    • the effect of RPI inflation on APD receipts is not linear, given that rates are rounded to the nearest £1, so we have not included a ready reckoner here.

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  • Other information

    Our forecasts for air passengers by APD band can be found in our published supplementary tables.

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