Reaching for the skies requires more ambition

Reaching for the skies requires more ambition

by Liam Kerr
article from Wednesday 10, May, 2017

AIR PASSENGER DUTY (“APD”) is being devolved to Scotland and, as a result of the Air Departure Tax (Scotland) Bill, an Air Departure Tax (“ADT”) will replace APD in Scotland from April 2018.

In effect, this replicates the ability to collect a “tax on air departure” in Scotland; from that date the UK’s ability to levy such tax in Scotland will be “switched off”.

The rate and applicability of ADT however is up to the Scottish Government. For our purposes, the current rate of APD is £26 for flights up to 2,000 miles and £150 over that.

Research suggests the abolition of APD has the potential to generate approximately 61,000 jobs and raise more than a net £0.5 billion in extra tax receipts. In 2015, York Aviation estimated an APD reduction of 50% would help create in the region of 3,800 new jobs by 2020 in Scotland whilst Biggar Economics had, some years earlier, estimated such a cut would result in 4.6 million additional passengers per year by 2021.

This news is encouraging and of course, very welcome, given that existing evidence strongly suggests that APD, in its current form, is hampering Scotland’s economic performance and hindering levels of tourism.

In the Netherlands, a departure tax was introduced in 2008, only to be scrapped two years later due to the detrimental consequences on both passenger and tourism levels. Since, figures have suggested that the estimated cost to the Dutch economy was €1.3 billion.  Similarly, the Republic of Ireland abolished its version of APD; with annual airport traffic rising by 3.3 million passengers the following year.

The Scottish Government has committed to reducing the overall tax burden of ADT (and therefore ADT revenues by an estimated £140 million) by 50% by 2021, and abolish it entirely when “public finances allow” but, staggeringly, hasn’t done its own homework!

Last month, Derek Mackay appeared before the Parliament’s Finance and Constitution Committee, stating that to ‘’the best of his knowledge’’, no independent research had been commissioned by the Scottish Government, seemingly suggesting that the policy has been set in the absence of any economic assessment.

Following calls from MSPs on the committee for such analysis to be conducted, Mr Mackay, who believes that the tax, at present, is "a barrier to Scotland’s ability to secure new direct international services and maintain existing ones", wrote to committee members stating that a report outlining these details would be made available in Autumn.

Scottish Ministers seem to be persuaded that these plans will deliver ‘’strong economic benefits’’. The Scottish Conservatives support an overall 50% reduction in ADT rates, but we believe the real economic benefits will be obtained from applying this to long-haul flights and implementing an immediate APD freeze on short-haul flights to the UK and Europe, in order to ensure passengers can enjoy cheaper fares for destinations nearer to home.

In 2015, the Republic of Ireland saw over 2.5 million passengers travel to or from the United States; in Scotland, that number is only around 470,000. However, the Scottish Association for Public Transport has advised that plans like those which have been proposed by the Scottish Conservatives, will incentivise long-haul operators to provide new direct links from Scotland to America, China and other global destinations and increase the probability of them establishing an operational base in Scotland. 

This, in turn, will also provide environmental benefits, unlike presumably plans to reduce ADT on domestic, or short-haul flights, which as the Committee has heard, will encourage more of a shift from rail to air and have negative impacts on environmental policy objectives.

In the context of Brexit, let’s use the powers Scotland has productively to “go global”, creating new jobs, delivering more opportunities, and building a stronger, more sustainable economy.

Our proposals not only offer greater convenience and wider access for travellers, they will stimulate tourism and trade and through the significant reduction in the number of connecting flights, will lessen our carbon footprint. The SNP’s plans for this tax show scant forethought, and precious little ambition.

I note that there is currently an exception to the APD for Highland and Islands Airport due to the amount of time it would take to travel from Northern Scotland to the South.

For those such as I, who enjoy the advantages that life in the NE brings, the SNP’s bid to discourage flying is hampering business growth. Throughout 2015, as I sought to expand my business in Aberdeen, I was required regularly to fly to London once or twice a week. That journey was an hour and a half, compared to an 8-hour train ride. It really is simple: for somewhere like the North East to prosper, it needs to be well-connected by air to major cities around the world.

Whilst I understand the Scottish Government is rightly concerned about modal shift in the Central Belt, where the train is neither a realistic alternative nor the right means of transport for a local economy, oughtn’t we to encourage flying and make it easier?

I asked Derek Mackay in Committee why a similar exemption to that applied to HIA couldn’t be considered for Aberdeen Airport. His response was that it wouldn’t even be considered, because the best way to achieve the strategic objectives of boosting Scotland’s air connectivity and generate sustainable economic growth is to apply ADT equally to all areas and airports. Furthermore, a differential approach would be likely to increase the complexity of the tax, its administration and compliance.

I find it deeply concerning that the Government will dismiss one proposition without investigation simply for expediency and apparent ease, whilst already pursuing a differentiated policy for HIA.

I think it worth at least exploring Aberdeen & Grampian Chamber of Commerce’ ideas around an exemption for Aberdeen Airport (and others where there is no viable alternative to air travel) such that when certain distances/times/destinations are used, a zero-band of ADT applies. They suggest air journeys to other UK airports which by surface-based methods would take more than 4 hours and are a distance of more than 350 miles would pay no APD. Such a mechanism would ensure passengers from these locations are not unfairly penalised for their geographical location on domestic flights but also ensure that the system remains fair between Scottish airports when passengers travel to Europe and further afield.

The only way to ensure that all of Scotland, not just certain regions, benefits from the ADT will be for the Scottish Government to reduce the rate for long-haul international flights, freeze the ADT rate for domestic flights, and start to think more creatively about the North of Scotland.

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