Federation of Tour Operators & Ors, R (on the application of) v HM Treasury

Tax measures remain subject to scrutiny under Article 1 of the First Protocol, but taxation attracts a wide margin of appreciation. A challenge succeeds only where the legislative assessment is devoid of reasonable foundation. The court need not prefer another measure merely because it might pursue the objective more efficiently.

Where a tax imposed on aircraft operators falls de facto on tour operators because contractual or regulatory arrangements prevent recovery from customers, the court must assess whether the burden is individual and excessive. The absence of an environmental effect for pre-booked passengers does not invalidate a measure that also rationally serves revenue raising.

The Chancellor announced on 6 December 2006 that Air Passenger Duty would double from 1 February 2007. The Federation of Tour Operators and representative tour operators argued that the Package Travel, Package Holidays and Package Tour Regulations 1992 prevented them from passing the increase to customers whose package holidays had already been booked.

The Treasury refused to postpone or exempt those bookings. The Finance Act 2007 gave effect to the increase. The Administrative Court rejected the challenges: [2007] EWHC 2062 (Admin). On appeal, the operators pursued only whether section 12 of the Act unjustifiably interfered with their A1P1 rights and sought a declaration under section 4 of the Human Rights Act 1998.

The appeal was dismissed unanimously. Waller LJ gave the judgment, with Buxton LJ and Smith LJ agreeing.

1. Tax measures are not immune from scrutiny under Article 1 of the First Protocol. The court endorsed the proportionality approach stated in R v Secretary of State for the Home Department ex p Daly [2001] 2 AC 532, subject to the caution required in taxation cases. Parliament and ministers receive an appropriate, generally wide, margin of appreciation. A successful challenge requires the legislative assessment to be devoid of reasonable foundation. The court need not invalidate a tax because another measure could pursue its objectives more efficiently.
2. Air Passenger Duty was properly characterised as a tax imposed on aircraft operators by reference to the passengers carried. The fact that contractual and regulatory arrangements caused the economic burden to fall de facto on tour operators required the court to examine the realities of the situation, following Sporrong and Lonnroth v Sweden (1983) 5 EHRR 35. It did not make the measure an individual tax on tour operators.
3. The measure served both revenue-raising and environmental objectives. The environmental effect was absent or speculative for flights already booked, but the revenue objective remained rational and important. A class-specific exemption would have reduced revenue and would have been difficult to justify when previous postponements had applied generally.
4. The operators were not uniquely disadvantaged. Airlines faced a comparable commercial risk, and tour operators could adjust later prices or absorb the short-term impact. The failure to exempt pre-booked package holidays therefore imposed neither an individual nor an excessive burden and was not devoid of reasonable foundation. Section 12 was compatible with A1P1, so no declaration of incompatibility was made.

• Court of Appeal (Civil Division): Dismissed the appeal, upholding the Administrative Court’s rejection of the A1P1 challenge.
• Administrative Court: Stanley Burnton J rejected the challenges to the Air Passenger Duty increase, including the A1P1 challenge: [2007] EWHC 2062 (Admin).