Labour prepares £1bn stealth tax on family holidays

 Labour is planning a £1bn tax grab on family holidays even as Rachel Reeves unveils summer cost of living support for households.

HMRC officials are drawing up plans to impose VAT of 20pc on top of the fees that airports charge airlines to use their runways and terminals.

These fees are typically passed on to customers in full, meaning the move would heap more costs on holidaymakers and businesses. At Heathrow, the measures could add almost £5 to the current standard charge of about £24.

One airline industry insider said the Labour plan amounted to a “stealth tax” on families at a time when the cost of living crisis meant many people were already struggling to afford a holiday.

The Telegraph also understands that ministers are exploring the possibility of backdating the tax by as many as four years – the maximum permitted under current legislation.

Such a move would add around £1bn to costs paid by airlines that fly from Heathrow alone.

The sum would be imposed on top of the Air Passenger Duty (APD), which ranges from £15 to £106 for an overseas flight on an economy-class ticket depending on the distance flown.

Plans are being drawn up by HMRC and could be announced later this year. 

The proposals emerged even as Ms Reeves announced Labour would cut VAT on family days out this summer in an attempt to ease pressure on household finances amid the Iran war.

The Chancellor announced that entry prices for theme parks, zoos, museums and other family tickets will attract a lower 5pc rate of VAT during the summer holidays instead of the usual 20pc.

The discounted rate, which also applies to children’s meals, cinema tickets and entry to soft play and the theatre, will run from June 25 to Sept 1.

The £300m scheme is part of a broader package, worth more than £1bn, announced by Ms Reeves in the Commons on Thursday.

The Government claimed the reduction would cut £20 off the cost of a trip to a theme park for a family of four with two children, £1.50 off cinema tickets and £2 off a family meal.

Fuel duty will be frozen for the rest of the year, while the Chancellor also threw the energy-intensive chemicals and ceramics industry a £470m lifeline.

Children will enjoy free bus journeys in August, while cuts to import taxes on some basic foods were also confirmed by Ms Reeves.

Ms Reeves stopped short of announcing broader support for household energy bills, but said the Government stood ready to offer more targeted support this autumn if bills continue to rise.

The Chancellor said she would pay for the discounts by raising more tax from global oil and gas firms such as BP and Shell operating in the UK.

She said the move would raise “hundreds of millions of pounds a year, which is why we are able to afford the package that we have announced today”.

The Office for Budget Responsibility will assess the effect on the finances in the autumn.

Businesses welcomed the move. Fiona Eastwood, the boss of Merlin Entertainments, which runs Alton Towers and Legoland, confirmed it would apply the reduced VAT rate to both admission tickets and children’s meals.

Kate Nicholls, the chairman of UKHospitality, said the move was the “quickest and simplest way to lower prices and boost consumer confidence”.

‘Most overtaxed aviation markets’

However, the aviation industry reacted with alarm to the idea of imposing VAT on airport charges.

An Airlines UK spokesman said: “The UK is already one of the most overtaxed aviation markets in the world and as the cost burden increases we risk becoming even more uncompetitive.

“The only people cheering a move like this would be those running rival airports overseas.”

Andrew Griffith, the shadow business secretary, said: “Any additional tax on aviation is a tax on doing business, a brake on exports or an attack on hard-working families. No government on the side of growth would indulge this idea.”

Heathrow generated £1.13bn in revenue from passenger charges last year, while Gatwick reported charges of £607m and Manchester Airports Group, which owns Manchester and Stansted airports, recorded £470m.

Including smaller hubs, that indicates that the VAT take for the Treasury could top £1.5bn, though it is not clear whether the tax could be imposed on both outbound and return flights.

One industry source suggested that while the topic was under discussion, it had so far amounted to a “fishing trip” by officials tasked by Ms Reeves with devising new ways of raising cash.

The source said: “It’s a very technical conversation, with HMRC trying to work out if they can capture additional tax revenue.

“The question is whether it’s going to move forward and, if it does, whether it is going to hit passengers.”

An industry insider questioned whether the plan would be legally possible. The proposals threaten to run up against international aviation rules that exempt airfares from VAT.

Heathrow is understood to be taking legal advice on the proposals and it’s consulting tax experts.

A government spokesman said: “The Government is not considering any changes to tax rules in this area. HMRC routinely engage businesses on how existing tax rules are being applied.”