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Aviation tax: Flights tax increase is grounded for a year

Holidaymakers were spared an increase in flight taxes after George Osborne delayed a with-inflation rise in Air Passenger Duty (APD) until April 2012. The Chancellor said he would propose clawing back some of the money by imposing a tax on private jet users, who are currently exempt from APD.

Passengers on ordinary flights currently pay up to £170 in APD every time they fly. Ministers had examined options for reforming the tax, including a plan to impose duty on aircraft instead of on travellers, in an attempt to boost the Coalition's green credentials. But Mr Osborne said all of the alternatives which had been looked at were found to be illegal under international law. However, he still intends to reform anomalies in APD, such as flights to the Caribbean attracting a higher tax than flights to California, even though California is further away.

A per-plane tax would have discouraged airlines from running aircraft half-empty, as they currently do, and helped to minimise their impact on the environment. Mr Osborne said he was "reluctantly" shelving that plan "given concerns over the legality and feasibility of this approach".

Tour operators including Thomas Cook and TUI Travel were disappointed, saying that the Chancellor wanted to penalise the airlines which carried most passengers.

Britain has to agree any shift in taxation with other countries as part of international obligations including the Air Service Agreements and the 1944 Chicago Convention. Andrew Tailby-Faulkes, a tax partner at Ernst & Young, said: "This is a blow to the Treasury finances and the Government's green policies."