APD is due to be devolved to the Scottish government, with the ruling Scottish National Party promising to cut the aviation tax by 50%. This has raised fears among airports in the north of England, such as Newcastle International, that they could lose passengers to Scottish airports.
Chancellor George Osborne is also expected to announce the devolution of APD to the Welsh Assembly during his budget next week.
A survey of MPs carried out by the Airport Operators Association (AOA) found that 60 per cent believed that APD should be charged at the same rates across the UK, regardless of devolution, with 26 per cent “strongly” supporting this policy. [AOA press release here, but no details of their “survey.” Not date. No details on numbers, questions, methodology etc].
The AOA has also written to Osborne asking him to use the budget to respond to last year’s discussion paper issued by the Treasury focusing on the potential impact of APD devolution on English regional airports.
Darren Caplan, chief executive of the AOA, added that the association agreed with the Scottish government’s policy of reducing APD as soon as possible.
“As a membership organisation that represents airports in every part of the UK, however, we are understandably concerned about the impact that such a move will have on all of our members in all parts of the country,” he said.
“It absolutely cannot be right or fair for one part of the UK to be able to offer a substantially lower rate of APD compared to other areas of the country.
“We now need the chancellor to set out his emerging thinking so that everyone – airports, airlines and customers – can start to plan for the future with a degree of certainty.”
The Scottish government plans to cut APD by 50 per cent in 2018 with the long-term aim of abolishing the tax.
….a group of 30 Conservative MPs wrote to the Chancellor urging him to guarantee that airports in England will not be undercut by rivals in Wales.
Mr Osborne is said to be considering plans to devolve setting air passenger duty to the Welsh government.
But the group of MPs, all of whom represent constituencies in south-west England, warned that airports such as Bristol would lose business if the duty was cut at Cardiff Airport but remained unchanged in England.
In the letter to the Chancellor, the MPs, led by Liam Fox, warned that devolving APD to Wales could have an “extremely severe” impact on passengers and businesses in the region.
They predicted “more expensive travel for people in the South West when going on a hard-earned family holiday” and called on him to rule out devolving APD to Wales in the Budget on Wednesday.
Scottish Government to consult on impact of halving, and then removing, APD
The Scottish government intends to remove Air Passenger Duty (APD) from flights departing from Scottish airports, in the hope of attracting more flights. Scottish ministers hope cutting APD would encourage more direct flights from Scotland and reduce the need for connecting flights via Heathrow and Amsterdam. Air travel is already very under-taxed, paying no VAT and no fuel duty. The Scottish Government says it will halve APD during the Scottish Parliament’s next term, which will run until around 2020. That will mean about £200 million in lost tax to the government, and the Scottish government has to reimburse the UK Treasury. Scottish ministers want APD cut completely “when public finances permit.” There is to be a new policy forum to look into the implications of removing or reducing APD, and a policy consultation this autumn. The forum will include some environmental groups, as well as aviation lobbies. There would be increased CO2 emissions from Scottish aviation if there was a 50% cut in APD, and even more so with no APD. The Scottish government will have to explain “which other sectors of society will pick up the shortfall and at what cost.” More cheap holiday flights for Scottish people is likely to increase the tourism deficit, with more money flowing out than is brought in by in-bound tourists.
Treasury opens consultation on protecting regional airports from impact of devolving APD
In the Summer 2015 Budget, the Chancellor has announced a short consultation (ends of 8th September) on options for supporting English regional airports from the impacts of Air Passenger Duty (APD) devolution. Sootland may remove APD, and so may Wales. Airports in the north of England are concerned they could lose passengers, to cheaper Scottish flights. The consultation sets out three options for changes to APD. The first is devolving APD within the UK, with powers over APD devolved fully or partially to local authorities within England. The second is varying APD rates within England, so central government would retain powers over APD for the English regions. The rates of UK APD would be varied according to specific criteria, resulting in different rates in different parts of the country. The third is to provide aid to regional airports within England, which have been adversely affected by the devolution of APD. This could be through the Regional Air Connectivity Fund, mainly for the smallest airports and those with up to 3 million passengers per year may be permitted investment aid only in ‘case specific circumstances’. Many airports likely to be affected could be too large to be eligible for aid.
Government confirms APD devolution to Scotland
The UK government has published a document, “Scotland in the United Kingdom: An enduring settlement”. It sets out the Smith Commission Agreement on devolving powers to Scotland. This states: “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. ….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. … A fair and equitable share of associated administrative costs will be transferred to the Scottish Government. ….The clause includes provision for appointing the day when APD will be switched off in relation to Scotland.” Abta and the Airport Operators Association (AOA) have responded the plans to devolve APD to Scotland by demanding consistency across the UK. They claim this will affect the competitiveness of regional airports in the north of England.
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.