August 29, 2007

VAT on flights

Like the Devil I have recently spent a few days in Edimburgh, though purely as a spectator as a little break. To get their I flew from Exeter. The reason for flying was quite simple, by flying I actually got 5 days of holiday out of my 5 day holiday rather than 3 days of holiday plus 2 days traveling. The price of the ticket was identical to taking the train, to which you had to add the taxes which doubled it. Traveling has an external cost to the enviroment, which could be internalised through the tax system like the Tories seem to be proposing, so lets have a look at how much that should be.

Using the first link on Google I could have offset 2 long haul flights for the same tax as my hop to Edimburgh, even on their most expensive package. The cost that that particular company charges for a short haul flight like mine would be between £4.50 and £6.45, depending on how you wanted your offsetting performed, less than a tenth of the tax that I had paid. Using their handy calculator I would have produced 0.2 tonnes of CO2, so using the Stern review numbers of a cost of $85 per tonne I should be paying $17 or about £8.5. With this in mind I bought their middle package, not much of an outlay and actually still a bit of a saving when viewed over the long term. Given this data I feel that it is safe to say that the external costs of carbon had already been factored into my flight by the taxes that I was already paying.

This proposal also gets it wrong as a Pigou tax. Carbon is the externality so they should not be taxing value, they should be taxing carbon. Had I flown on a nuclear fission ram jet then the value would have been the same but the carbon released would have been zero, with the added advantage of making large areas of The North uninhabitable. While we do not really know, or have sufficiently developed markets to find out, what the true cost of carbon is using the Stern Review numbers comes out at significantly less than had VAT been used instead. Is it being a bit cynical to see this as the reason this proposal uses VAT rather than a carbon tax? Yes, but it also probably has an element of truth to it.


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