Air Passenger Duty to be devolved to Scotland, which wants to halve & then scrap it
The Smith Commission, to see how powers including taxation could be devolved to Scotland, says that the Scottish Parliament should be able set income tax rates and bands and Air Passenger Duty should be fully devolved. At present, APD is charged by the Treasury only because air travel is significantly under-taxed, paying no VAT and no fuel duty. There is no logical reason why air travel, which is a luxury product, for discretionary spending, should be exempt from tax. This is particularly the case when the richest sections of society do the most flying, and of the 50% or so who do not fly in any one year, many are less affluent. The Scottish Government wants to halve and then remove APD. For the UK, APD raises about £3 billion per year, and of this about £200 million is raised in Scotland. In theory cutting APD would perhaps increase the number of tourists coming to Scotland. In reality, it is likely that many more Scots travel abroad for their holidays, taking their spending money with them, than foreign tourists flow in. Cutting the tax, and losing the tax revenues from the public finances, may not be wise if it just boosts outward tourism. Airports in the north of England are concerned about losing passengers, who could fly cheaper from Scotland.
The Smith Commission says:
Air Passenger Duty
86. The power to charge tax on air passengers leaving Scottish airports will be devolved to the Scottish Parliament. The Scottish Government will be free to make its own arrangements with regard to the design and collection of any replacement tax,
including consideration of the environmental impact.
87. In line with the approach taken in relation to the Scotland Act 2012, if such a tax
is introduced by the Scottish Parliament to replace Air Passenger Duty (APD), the
Scottish Government will reimburse the UK Government for any costs incurred in
‘switching off’ APD in Scotland.
88. A fair and equitable share of associated administrative costs will be transferred to the Scottish Government. The Scottish Government’s block grant will be adjusted in line with the principles set out in paragraph 95 to accommodate the devolution of APD.
Air Passenger Duty devolved to Scotland
Nov 28 2014 (Aviation Environment Federation)
The Smith Commission announced on Thursday (27/11/14) that control over Air Passenger Duty for flights from Scottish airports would be devolved to the Scottish Government. As the Scottish National Party has already committed to reforming and eventually abolishing APD, the announcement means that the tax could be scrapped on flights from Scottish airports.
Regional airports in England fear this could negatively impact them and International Airlines Group CEO Willie Walsh has warned of flocks of people “rushing across the border” to board a flight from Edinburgh airport.
Control of APD was devolved on long-haul flights to the Northern Ireland Assembly in 2012 and then set at £0. However, EU tax laws mean that the duty on short-haul flights to EU destinations cannot be set variably within the same member state, suggesting there could be legal obstacles ahead for the devolution of APD in Scotland.
As we highlighted in a recent blog, aviation pays no VAT or fuel duty, a shortfall for the treasury of around £10 billion. In comparison, Air Passenger Duty raises around £3 billion each year.
Air travel is comparable only to car travel in its environmental damage and yet is exempt from paying VAT and fuel duty.
Aviation as a whole enjoys significant tax exemptions, including paying no VAT or fuel duty. For an industry with a very significant environmental impact – only car travel comes close as a transport mode in emissions per km – this is an anomaly. If UK aviation paid VAT and fuel duty at the same rate as motorists then around £10 billion could be raised for public finances. APD by comparison raises £3 billion annually. Existing air service agreements between the UK and other countries mean that fuel duty cannot be raised on international air travel, while VAT is currently zero rated for international aviation across Europe, and so APD makes up some of the shortfall in tax revenue.
Devolution of air duty causes anger in England
By Daniel Sanderson (Herald Scotland)
Friday 28 November 2014
PLANS to devolve Air Passenger Duty (APD) to Holyrood provoked a furious backlash south of the Border over fears that scrapping the tax will lead to a stampede of passengers crossing the border for cheaper flights.
The Scottish Government favours halving and eventually axing the tax, which is worth around £2.9 billion in the UK annually, in a bid to increase travel from the country’s airports and boost the economy.
Around £200 million of the tax is raised in Scotland. It typically adds £52 to the cost of tickets for a family of four [ie. it is only £13 per person for any flight to Europe or North African resorts] on short-haul flights and £276 on long-haul.
Although most Smith Commission representatives favoured devolution in the area, shadow chancellor Ed Balls was among those to voice concerns. Willie Walsh, of British Airways’ parent company IAG, said people would be “rushing across the border” as a zero APD rate would make it £276 cheaper for a family of four to fly to the US.
Newcastle Airport said it feared 1,000 jobs and hundreds of millions of pounds would be lost to the economy in the area if duty was removed over the Border.
However, the move was backed by Scotland’s largest airports. The tax, which has already been axed in many European countries, [that is nonsense – it is, and always was, a UK tax …] acts as a barrier to tourism and discourages airlines from adding new routes according to industry chiefs.
Gordon Dewar, Edinburgh Airport chief executive, said: “We strongly believe that there is a real case to see it devolved as soon as possible so that Scotland can capitalise fully on the benefits of this fantastic year where we have been in the global spotlight. Airline planners are finalising 2015 now and we run the risk of losing that momentum as those people who wish to visit us are deterred by the highest aviation taxes in the world.”
Highlands and Islands Airports (HIAL) said the tax was “choking” the recovery of the airline industry and acted as a barrier to business and tourism. Glasgow Chamber of Commerce said it should be slashed or scrapped completely.
Amanda McMillan, managing director of Glasgow Airport, said: “APD is a damaging, regressive tax which, in addition to dissuading airlines from adding new routes, makes it extremely challenging to maintain existing services. Having full control of APD will play a major role in strengthening Scotland’s connectivity and provide yet a further boost to our burgeoning tourism industry.”
Immediately after the announcement that APD was part of the package of new powers proposed for Holyrood, Westminster faced calls to react to the fact that Scottish airports may be handed a big advantage.
First Minister Nicola Sturgeon said the Scottish Government’s position over the tax had not changed.
Newcastle Airport said it was “extremely concerned” over the development. Chief executive, David Laws, said: “Our submission [to the Smith Commission] predicts 1,000 fewer jobs across the North East by 2025, significant impact on passenger numbers, £400m in Gross Value Added lost between 2015 and 2025, and additional journey time costs of £265M between 2015 and 2025.
“We are now seeking a signal from the Chancellor in next week’s Autumn Statement that the Government is going to do something to address any future distortions.”
Bristol Airport has also raised fears that it would be damaged if the Welsh Assembly devolved APD. It would hand a significant advantage to Cardiff, lying across the Severn Estuary and just 65 miles away.
In a letter to George Osborne, Mr Balls said: “English regional airports cannot be faced with continuing uncertainty and risk through not knowing whether they will be significantly disadvantaged should a future Scottish Government introduce changes to APD.”
The BBC article on the Smith Commission said:
Scotland ‘should set own income tax’, says Smith Commission
The Scottish Parliament should have the power to set income tax rates and bands, the body on strengthening devolution has concluded.
The Smith Commission also said a share of VAT should be assigned to the parliament, and Air Passenger Duty fully devolved.
The commission was set up by Prime Minister David Cameron in the wake of the vote against Scottish independence.
Its findings will form the basis of legislation on more Scottish powers.
The UK government welcomed the report, but Scottish ministers said it fell short of what the nation needed to flourish.
……… and it continues …..
Comment from an AirportWatch member:
APD cuts mean tax benefits for the well off, who do the majority of the flying
Cutting Air Passenger Duty is particularly inequitable, because by effectively subsidising air travel (it pays no VAT and no fuel duty), the subsidy is greatest for the most affluent.
As holidays and leisure trips are expensive, while the poorer sections of society may take one holiday or leisure trip per year, or at the most two (many take none), the richest sections of society often take multiple trips per year, and long haul trips. For instance, those with second homes abroad, who may fly to and fro 5 or more times per year.
The more people fly, the more the effective subsidy they receive. Cutting APD is a regressive taxation measure, as the tax is lowest for those who are able to pay to fly the most.
“Cut to APD vital for Scotland’s future success” – claims SNP:
The cutting and eventual abolition of Air Passenger Duty is a vital way of helping to boost tourism and investment and create jobs in Scotland – and demonstrates perfectly just how economically powerful and successful an independent Scotland will be, the SNP has said today.
While the No parties are all over the place on the devolution of APD – with Ruth Davidson’s support for the move seeming to be overruled by David Cameron just last week – the SNP in Government is clear that following a Yes vote, APD will be cut by half, and eventually abolished completely.
This morning, Edinburgh Airport Chief Executive Gordon Dewar outlined his support for the abolition of APD, pointing out that “most of our European competitors don’t have it” and stating “fundamentally, it’s a stupid tax” that has resulted in the loss of around 2 million passengers in Scotland alone as “airlines that could be operating out of Scotland and out of the UK are simply not here because they can’t make the economics stack up.” [Naturally, many companies etc could be better off if they did not pay tax. So would many individuals. But paying tax is one of those necessary obligations that comes with living in society. Taxes have to be paid, in order for a complex society and economy to flourish. It is not just an option].
He added that with a cut to APD, Edinburgh Airport “could be doing more” to boost tourism and create jobs.
Plans to scrap APD have previously been backed by FlyBe, head of European airline Ryanair Michael O’Leary and Willie Walsh, the Chief Executive Officer of IAG – the parent group of British Airways.
Commenting, SNP MSP for Edinburgh Western, Colin Keir said:
“Air Passenger Duty is a misguided tax – indeed, Edinburgh Airport Chief Executive Gordon Dewar has today described it as “fundamentally stupid”, resulting in the loss of around 2 million passengers and a number of airlines from Scotland. Most other European countries don’t have APD – it is a tax that is holding Scottish tourism back and putting up the cost of family holidays.
“This issue illustrates just how economically powerful and successful an independent Scotland will be in attracting jobs and business activity – that is the view of people south of the border, and is the exact opposite of the negative nonsense the No campaign peddle in Scotland.
“In a year when tourism spend is increasing in Scotland – up 20% on last year – and Foreign Direct Investment is at the second highest level in the UK after London according to Ernst &Young, we must make the most of the attractiveness of visiting and doing business in Scotland. This attractiveness is set to rise – a report from Barclays in May found Scotland set for a major tourism boost worth £2.3bn by 2017, with spending from overseas visitors set to rise highest in Scotland at 40 per cent compared to 34 per cent across the rest of the UK. After a Yes vote, this predicted boom will be boosted even further when we will cut APD, abolishing it completely in the longer term.
“While the No parties are all over the place on APD – with Ruth Davidson’s support for scrapping it apparently overruled just last week by boss David Cameron – the SNP in Government has been clear and consistent: with a Yes vote, we will cut and then abolish APD. This will allow more airlines than ever to invest in Scotland, cutting the cost of family holidays and opening up more destinations across the world to Scots.
“Only the full powers that a Yes vote will allow us to unlock the full potential of the Scottish economy – and cutting APD is a perfect example of this.”
AEF comments on APD and families:
Is APD ‘pricing families out of the skies’?
Opponents of APD commonly claim that the duty adds a significant amount to the cost of a family holiday. With the average cost of a family holiday to Europe costing £2000, APD would make up under 3% of a holiday’s cost. We are yet to see evidence that indicates the 52% of the UK population who don’t take a flight each year view APD as the main financial hurdle. For those who could be classed as frequent flyers and predominately among the higher earners in the country – half of the people taking four or more flights are in the highest quintile for household income – it is only ‘fair’ that they do not benefit from the aviation industry being under taxed.