Opinion: APD’s unfairness will be exposed by devolutionPosted: January 23, 2015
Plans to give Scotland powers to set APD rates ensures the story of the tax’s damaging impact on the UK economy will be told during the General Election, says Abta’s Stephen d’Alfonso
Last year’s referendum on Scottish independence may seem like a long time ago.
But yesterday, the debate was reopened as the UK government published proposals to make good on the promises made to devolve more powers to Scotland.
The proposals, presented yesterday and which will be presented to Parliament as a bill following the General Election, are indeed sweeping.
The Prime Minister has been quoted as saying Scotland will become ‘the most devolved country anywhere in the world’ – which is quite a claim.
Change is coming to the UK’s constitutional settlement, and nowhere is this more apparent than on Air Passenger Duty (APD) – the stealth tax loathed by passengers, the travel industry, and businesses alike.
Following on the recommendations of the Smith Commission announced in November, APD has been put forward as a tax matter to be wholly devolved and yesterday’s proposals will therefore undoubtedly have significant implications for businesses and passengers on both sides of the border.
The Scottish government has pledged to cut APD by 50% on departures from Scottish airports, with the intention of ultimately doing away with it altogether.
The Chancellor George Osborne has said that tax competition is a healthy and inevitable consequence of devolution but given the massive gulf between the UK’s current level of APD – which despite some very welcome revisions by government in 2014 is still among the highest anywhere in the world – there are some significant concerns for our industry and for consumers too, if devolution leads to vastly differing APD regimes.
Abta, as part of A Fair Tax on Flying, has for some time shared the Scottish government’s assessment that APD represents a growing barrier to trade, investment, and tourism.
If the Scottish government sticks to their commitment, businesses and consumers in Scotland will quickly begin to feel the benefit of an APD reduction – and an associated boost to competitiveness, profitability, and spending power. The subsequent impact on the north of England could be very damaging indeed.
For the first time, consumers in other parts of Great Britain – namely the north of England – will speak with their feet, and could opt to travel from Scottish airports to take advantage of the potentially huge APD savings.
This may be good for consumers, but it will damage the competitiveness of regional airports near Scotland, could encourage important airline routes to relocate from English airports to Scotland, and could leave customers in other parts of the UK paying an unfairly high level of APD.
Abta has therefore called on the UK government to commit to parity and consistency in the rate of APD across the whole of the UK. To that end, Abta and A Fair Tax on Flying Campaign are calling for future APD cuts in any part of the UK to be matched, immediately, with corresponding cuts everywhere.
In opting to reduce or abolish APD, the Scottish government would join the ranks of the vast majority of European states such as Denmark, Ireland and the Netherlands – each of which have abolished their version of the tax.
While the devolution process will unfold slowly in the coming months, once any APD cut is made in Scotland, the impact will be felt swiftly on both sides of the border.
We are therefore calling on the UK government to take the lead, and conduct an economic review of this tax now.
The industry is confident that a government review would yield the same result as the PWC research, which found that a significant cut to APD would more than cover lost Treasury revenues by way of increased economic activity and investment.
The industry must continue to make this case – and Abta will certainly be doing this as we engage parliamentarians and candidates standing in this year’s general election. Admittedly, the constrained fiscal environment the next government will find itself in will not make our job easier.
However, we have a strong evidence-based case of the benefits that cutting this tax will have on the public purse.
It’s also important to remember that we have a strong story to tell about the substantial costs to consumer, about the detrimental impact on business and ultimately about the fairness of this tax when we look at other countries’ approaches – a story that will be told in the coming months.