Reform aviation taxes: note

Central fiscal result

-£2.8bn - Net fiscal impact in 2028-29

Low case: -£5.0bn. High case: -£0.7bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

• Models reform aviation taxes by 2028-29.
• Baseline is current policy or published departmental plans.
• Central case uses published party or official anchors where available.
• Wider manifesto interactions are excluded unless stated.

Affected population

• Affected units are people, firms, households or providers depending on policy.
• Direct exposure follows the manifesto or government target group.
• Indirect exposure includes suppliers, workers, consumers and taxpayers.
• Weakest counts are widened in the low and high cases.

Gross impact

• Published anchor or scenario central is +£2.8bn in 2028-29.
• Gross costs or receipts are adjusted for behaviour and delivery risk.
• Tax, benefit or procurement offsets are separated in the fiscal build-up.
• The range is deliberately wider where implementation detail is thin.

Fiscal build-up, central case

• Gross tax or receipt yield: -£3.5bn
• Behavioural and avoidance response: +£0.6bn
• Administration and compliance cost: +£0.1bn
• Other tax-base interactions: +£0.0bn

Central net impact: -£2.8bn in 2028-29.

Behaviour and pass-through

• Low case assumes stronger delivery or receipts than central.
• Central case applies moderate behavioural leakage and pass-through.
• High case allows weaker delivery, larger take-up or higher costs.
• Output effects follow incidence, capacity and investment channels.
• Distributional gains do not automatically imply GDP gains.

Phasing

• 2026-27: -£0.3bn. Phased implementation and take-up.
• 2027-28: -£1.5bn. Phased implementation and take-up.
• 2028-29: -£2.8bn. Phased implementation and take-up.
• 2029-30: -£2.8bn. Phased implementation and take-up.

Main source groups

• Davis and Kilian, "Estimating the Effect of a Gasoline Tax on Carbon Emissions" (American Economic Journal: Economic Policy, 2011): Fuel taxes can reduce gasoline consumption and emissions, with distributional and behavioural effects; relevant to motoring and aviation tax measures.
• Liberal Democrats, "Funding a Fair Deal: Liberal Democrat Manifesto Costings" (2024): Party costings give 2028-29 spending, revenue and investment figures; used as starting anchors, not official costings.
• Parry and Small, "Does Britain or the United States Have the Right Gasoline Tax?" (Journal of Urban Economics, 2005): Efficient motoring taxes should reflect congestion, accidents, pollution and revenue needs; relevant to EV mileage and fuel duties.
• Liberal Democrats, "For a Fair Deal: Liberal Democrat Manifesto 2024" (2024): The manifesto gives announced policy detail across health, care, housing, taxes and climate; used to define the policy scenarios.