US warns UK of legal action over plan to raise airline taxes

In giving a quirky dimension to the fallout of the phenomenal costs of oil, the United States has threatened to take legal action against the United Kingdom over a planned increase in airline taxes. British newspaper Daily Telegraph has reported that “a letter sent from the United States Embassy in London to the British Department of Treasury raises the spectre of a court battle by warning that the proposed duty raises serious legal questions and could breach a number of international agreements.”

Observers point out that it is unusual for a foreign government to launch “such a detailed attack” on a domestic British policy.

The United Kingdom is planning to raise sharply the amount of money raised from airline taxes. The move is expected to fetch an additional £520 million annually to the UK Treasury Department.

According to the plans announced by Alistair Darling, Britain’s Chancellor of the Exchequer, in 2007, the method of taxing flights will be changed from the autumn 2009: Instead of each passenger paying a fixed levy per flight, the UK Department of Treasury will tax each plane. Airlines will then pass on the tax to passengers.

The amount paid per plane will depend on how far it is traveling, with the world divided into 3 taxation zones and European flights charged less than American and other long-haul destinations.

This plan, according to experts, will encourage people flying long-haul not to take direct flights but to change planes in Europe – this, in turn, will produce a significant disadvantage for British and American airlines that operate direct flights to the United States and other destinations.

Daily Telegraph quoted sources in major airlines as saying that for carriers, already grappling with record fuel prices, the tax-per-person on a flight to America or other long-haul destinations will rise from £40 to about £100 from 2009.

The six-page letter, sent on April 15, 2008, according to Daily Telegraph, gives a detailed rebuttal of claims made by Chancellor of the Exchequer Alistair Darling that taxes on flying are being increased to produce environmental benefits.

The letter sent from the US Embassy in London reads: “The Treasury’s proposal, though 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 is any data provided to justify the levy based on an assessment of damage from aircraft emissions.”

The US Embassy in London, headed by Ambassador Robert Tuttle, also warns Britain that the proposed levy threatens to damage America’s competitiveness. The letter explains: “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.”

Daily Telegraph quoted analysts as opining that “the intervention of the American Government is the latest setback to hit the UK Treasury, which has already had to water down a series of other policies announced in the budget and pre-budget report over the past year.”

Alistair Darling, the newspaper said, is also thought to have come under pressure from the United States over plans to raise tax on non-domiciled people, including wealthy Americans, living in the United Kingdom. Darling has withdrawn this proposal.