Most of us only need to think about Air Passenger Duty (APD) once a year when what would have been a reasonable price for our flight to the sun for a family of four becomes eye wateringly expensive when taxes are added on.
At least prices are now transparent with the headline price on an airlines’s website being the price that you pay, with a small box to the side detailing how much the Chancellor has removed from your wallet.
Apart from the inevitable annual increase in the budget and the associated outpouring of grief from the Aviation Industry, APD is not a headline inducing topic.
However, how APD is dealt with in future has suddenly taken on huge significance as to how mature we are as a devolved administration and how we are viewed as a Nation within the United Kingdom.
APD was introduced in the November 1993 Budget and initially was at a rate of £5 for flights within the European Economic Area and £20 for everywhere else. It now ranges from £13 in economy for the shortest flights to £194 in Business Class for the longest flights.
It was introduced as an environmental tax but simply suppresses demand without improving the environmental performance of airlines.
There has been a suggestion that it is such a drag on the economy that loss of revenue for the Treasury from removing it would be replaced by improved economic performance.
There has already been an attempt to devolve powers over APD to Wales.
A Commission on Devolution in Wales chaired by Paul Silk recommended in November 2012 that ‘APD should be devolved for direct long haul flights initially and recommended that devolving all rates of APD to Wales should be part of the UK Government’s future work on aviation taxation’.
The response of the UK Government makes interesting reading now, ‘Having given this recommendation careful consideration, the Government is not convinced by the case of devolving APD to Wales.
In particular, HMRC published a report in autumn 2012 highlighting that different rates either side of the Wales/England border would be likely to redistribute passengers between airports rather than significantly increasing the overall demand within the UK.’
The advice from HMRC has significant flaws. APD reduces the revenue that the airline receives from the passenger. It directly reduces passenger numbers because there are routes that the airlines cannot afford to operate.
It is particularly damaging to regional aviation, airlines cannot maintain networks at regional airports without concentrating passengers into a smaller number of airports. A number of smaller UK airports have become loss making and some have closed.
I would suggest that if the Welsh Government chose to reduce APD, as well as a redistribution effect, there would be an increase in the size of the total market and Cardiff Airport would offer an improved network that would better serve the people and economy of Wales.
That would seem to have been the last word on devolution of APD to Wales if it hadn’t had been for the Scottish Referendum. To ensure that the referendum was won, the UK Government had to promise further devolution of tax raising powers to Scotland.
The powers to be devolved were examined by the Smith Commission which recommended the full devolution of powers over APD. The UK Government has accepted the recommendations of the Smith Commission in full.
The significance to Wales is this. Clearly there are airports on both sides of the border in Scotland and England just as there are in Wales and England. If there is a significant variation in APD on either side of the border then passengers will be redistributed.
Why would it be acceptable for Scotland to take redistributed passengers and not Wales? The last argument against devolving APD to Wales has surely fallen?
The UK Government has to fully implement the recommendations of the Smith Commission or risk a backlash that will eventually take Scotland out of the United Kingdom.
The choice of the United Kingdom Government is to either accept that the same power over APD has to be devolved to the Government of Wales or say to the people of Wales that we don’t think you can be trusted with the same powers as the ones that have been devolved to Scotland.
What the UK Government will actually be saying if they refuse to devolve APD is that we don’t believe that the people of Wales will threaten to leave the union in the way that the people of Scotland did.
To return to my earlier point of the huge significance of this tax, there may not be an appetite for independence in Wales in the same way as there is in Scotland.
But if the UK Government starts to treat us as a second class nation within the union by refusing us powers that it readily devolves to Scotland, perhaps the people of Wales will start to think again about our place in the Union?
To those in England who wish to block the devolution of APD in Wales, they should concentrate on their own side of the border. It is inevitable that where powers are devolved, policy differences will evolve on either side of the border.
If organisations on the English side don’t like the policy differences they should lobby their own Government to make changes.
To try and stop the Welsh Government gaining powers in anticipation of what policy differences may develop is an attempt to limit the ability of the Welsh Government to take decisions that are in the interests of Wales.
However, I would anticipate that any devolution of APD to Wales will lead rapidly to a reform of APD on the English side of the border and actually that would be a very good result for the English Regions as well as for Wales and perhaps the English regions should support us rather than fighting against us.
Martin Evans is Visiting Fellow at the University of South Wales.
Sourced from Walesonline