Applying Kerosene Duty to Aviation
What would the effects of different duty levels be?
Unlike British drivers, airlines do not pay tax on the fuel they burn. Road fuel duty is currently levied at just under 53p per litre and this revenue accounts for 5% of Government revenues. It is used to pay for social costs incurred by burning fuel: air pollution, climate change, noise pollution, etc. In contrast, airlines do not pay anything, despite the fuel they burn causing the same problems.
The recently launched Jet Zero strategy envisaged that carbon pricing would play a large part in decarbonising the sector, but did not outline which policy mechanism would be used to make this happen. One of the obvious routes is to simply apply a duty, in a similar fashion to how the Government does so for road fuel. This study shows that, contrary to some claims, it is perfectly legal for the UK Government to apply a duty to some kerosene uplifted to planes in the UK. The study then calculates how much revenue would be raised if different duty levels were applied to fuel uplifted to different destinations.
The levels chosen are levels that match already existing duty levels: these are current and future road fuel duty, the normal level for avgas (which is the fuel used by small general aviation planes), and the European Commission-proposed level for kerosene duty.
The results are startling. Had the UK taxed all jet fuel uplifted at the same rate as drivers were taxed that year, then the Treasury would have been £6.7 billion better off. Whether or not fuel can be taxed depends on the destination of an aircraft though, and some air service agreements between the UK and other countries currently forbid this. However, fuel used for domestic flights and flights to the EU definitely could be taxed. It is therefore a political choice not to tax this fuel, and the UK Government should justify why it does not. If it was, then some billions would be raised.