Budget airlines fight Brown plan to double tax on fares

Air travellers could see fares increase by more than 20 per cent if a "green" tax proposed by the Chancellor of the Exchequer goes ahead.

Budget airline customers would be hardest hit by the strategy, which could double air passenger duty (APD). Low-cost carriers are the most likely to pass the full increase on to ticket holders.

The rise in duty, which would result in extra revenue of £800m, is expected to be announced in a White Paper on the aviation industry due in December. Such an increase would likely mean a hike of nearly 22 per cent, for instance, on the £22.99 fares from London to Bilbao, Nice and Rome being advertised by Easyjet.

At the moment, passengers on flights within Britain and Europe pay £5 per single journey if they are travelling on economy tickets and £10 for business and first class fares.

If they are travelling outside Europe the figures are £20 and £40 respectively.

A spokesman for Easyjet said the airline would "fight tooth and nail" to oppose any in increase in the duty. The existing tax was unfair because it was a fixed rate and therefore disproportionately affected airlines which charged lower fares. The Easyjet spokesman said companies which use "25-year-old gas guzzlers" should be made to pay more than those who use more environmentally-friendly aircraft.

The White Paper is also expected to set out plans for the immediate development of a third runway at Heathrow, an option strongly supported on economic grounds by Chancellor Gordon Brown. No 10 is known to favour a second runway at Stansted, partly because extra pollution will affect fewer people, but also because there are fewer sensitive constituencies in the area.

Tony McNulty, the aviation minister, recently warned airport operator BAA that the industry would have to pay for pollution and indicated that the Government was preparing to increase taxation.

The rationale for an increase in the duty is that the extra runway would be a "carrot" for the industry and the tax rise a "stick" so that air travel would not run out of control.

One alternative to increasing the APD is imposing a tax on aviation fuel. Critics of such a strategy point out that it would mean many aircraft would get around the tax by refueling outside Britain.

Another option, favoured by British Airways and BAA, would be to allow "emissions trading" so that developed countries would use up the pollution levels allotted to poorer nations and pay them compensation. An increase in APD would be quicker to implement and simpler to operate.

Britain's economically deprived regions are bitterly opposed to any increase in the tax because they believe it would affect their airports more than those in prosperous areas. Airports like Swansea, Newquay, Liverpool and Sheffield, which are all in areas designated by the EU as needing economic help, say they will lose services.

Neil Pakey, managing director of Liverpool John Lennon airport, said that an increase in duty would be a "huge hindrance" to economic development in Merseyside and other deprived areas.

The airport was already competing with continental counterparts which were protected by their governments. Mr Pakey said the budget airlines which used the Liverpool airport were on tight profit margins.

Airport operator TBI, which owns the Luton, Cardiff and Belfast airports, is also involved in the campaign to oppose an increase in APD.

The only British region with an exemption from the tax is the Highlands and Islands where passengers using the 10 airports do not pay the levy.