Rival airlines turn heat up on tax fight

Competitors unite to commission report into the full economic effects of £2.7bn passenger duty

A coalition of the country's biggest airlines has ramped-up its campaign for air passenger duty to be axed with an investigation into how badly the tax hurts the UK economy.

Bitter rivals Virgin Atlantic and British Airways owner IAG, alongside low-cost carriers easyJet and Ryanair, have asked big-four accountant PricewaterhouseCoopers to produce an economic impact assessment into a tax that they loathe.

Although PwC will be given a free rein to ensure the report is objective, the airlines are betting that the findings will show that the £2.7bn-a-year tax costs more than it raises by deterring people from taking flights to and from the UK.

This April Fool's Day the duty was raised by an inflation-busting 8 per cent, meaning the average family holiday cost increased by between £50 and £360.

The rate varies according to the class of travel, hitting economy fliers less than those in business class. The duty is supposed to be an environmental measure, with flights to long-haul destinations highly taxed to encourage travel to closer regions in a bid to cut carbon emissions.

However, in a joint statement earlier this year, the four airlines said that "the public should not be fooled again by this tax and the damage it does to them, to jobs and to the wider economy". Germany is the only other country in Europe that has a similar tax, and even that is far lower than in the UK.

Sources said that PwC was in "Week One" of its analysis and is expected to discuss the parameters of its work this week. A full report is expected this autumn, with press releases of the findings and submission to government, should PwC find what the airlines are expecting, around the same time.

An industry source said: "This is a big study into what cost this tax is putting on aviation. This is part of the battle over air passenger duty."

A second source said that PwC would be "looking at the facts as published by government" that have emerged since the duty was introduced in 1994, when £5 was levied for passengers flying within the UK and to EU destinations and £10 elsewhere. The source insisted that the airlines had ensured that the study would be "very independent" so that it retained credibility.

The bosses of the four airlines have also been vocal over the duty in recent months. During the announcement of easyJet's interim results in May, its chief executive Carolyn McCall (left) said: "The economic environment remains uncertain, and the aviation industry faces headwinds such as the recent increase in UK air passenger duty."

IAG's chief executive Willie Walsh accused the Government of "doing everything it can to suppress and damage" the aviation industry and he has repeatedly called for the tax to be scrapped. Virgin Atlantic's head, Steve Ridgeway, has called the duty "the world's highest passenger tax", arguing that even before the latest rise it was adding £150 to the cost of a flight to the Caribbean.

However, the tax is a significant source of revenue for the Treasury and its forecasts state that it expects to raise £3.9bn through air passenger duty in 2016.