US threatens legal action over British Government's high airline taxes

13 April 2012

The United States is threatening legal action against the British Government to force it into a u-turn over new airline taxes.


The US Embassy has expressed 'deep concerns' over the levy which could see passengers paying hundreds of pounds more on transatlantic flights.

US officials believe that although the taxes are billed as an environmental measure, they are in reality purely a way of 'generating additional revenue from the airline community'.

British Airways planes at Heathrow. The U.s has threatened to sue the Government over its high airline taxes for transatlantic flights

British Airways planes at Heathrow. The U.s has threatened to sue the Government over its high airline taxes for transatlantic flights

The strongly-worded letter, sent by the US embassy to the Government, threatens to embroil Gordon Brown in an embarrassing diplomatic row ahead of next week's visit to Britain by President George W Bush.

The United States says the move is breach of a number of international agreements and warns of a court room showdown if the policy is not reversed. They also say the taxes will threaten the competitiveness of its airlines.

Ministers are planning to sharply increase the amount of money raised from airline taxes in a move that will net an extra £520 million annually.

Airlines - already struggling to deal with record fuel prices - calculate that the tax per person on a flight to America or other long-haul destinations will rise from £40 to about £100 from next year. The levy will almost certainly be passed on to passengers.

The six-page letter from the embassy provides a detailed rebuttal of claims made by Alistair Darling, the Chancellor, that taxes on flying are being increased to produce environmental benefits.

The letter states: 'The Treasury's proposal, although cast as an environmental measure, appears in reality to constitute nothing more than a device for generating additional revenue from the airline community."

'There is no linkage between the funds collected from airlines and the mitigation of any environmental impact of airline emissions or any other environmental problem.

'Moreover, the Treasury's proposal does not demonstrate that the new duty would influence airlines to adjust their fleets or their booking practices to achieve higher load factors…Nor are any data provided to justify the levy based on an assessment of damage from aircraft emissions.'

The American Embassy - which is headed by Ambassador Robert Tuttle - also warns Britain that the proposed levy threatens to damage this country's competitiveness.

'The proposed duty, by raising the overall cost of flying aircraft to the United Kingdom relative to other destinations, is likely to diminish the number of flights operating to and from the United Kingdom,' the official note sent on April 15th states.

'This would seem an anomalous result, however, given the focus in the United Kingdom on, among other things, restoration of the competitiveness of Heathrow Airport with the opening of Terminal 5 and consideration of a third runway.'

The Americans also warn the Treasury that the 'proposed duty raises serious legal concerns'.

It details a number of international treaties and agreements which would allegedly be breached by the new tax raising the spectre of international legal action. The Americans have also sent the memo to other European governments.

Under the plans unveiled by Alistair Darling, the Chancellor, last year, the way in which flights are taxed will be changed from autumn 2009.

Instead of each passenger paying a fixed levy per flight, the Treasury will instead tax each plane. Airlines are expected to pass on the tax to passengers.

The amount paid per plane will depend on how far it is travelling with the world divided into three taxation zones and European flights charged less that American and other long-haul destinations.

There will therefore be a major incentive for people flying long-haul not to take direct flights but to change planes in Europe - producing a significant disadvantage for British and American airlines that operate direct flights to the US and other destinations.

A spokesman for the Treasury insisted that the proposed tax did offer environmental benefits.

'The per plane tax is intended to ensure the industry makes a greater contribution towards its environmental costs and to ensure that the aviation sector continues to contribute fairly and equitably towards the funding of public services,' he said.

But the move by the United States will put the Government under serious pressure. In the past few months it has made several u-turns on tax policies, in particular the about-turn on the 10p tax rate.

The US embassy in London is itself embroiled in a battle with the Greater London Authority. It currently owes more than £2 million in unpaid congestion charge payments after refusing to pay it and branding the levy 'illegal'.



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