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The devolution of Air Passenger Duty to Scotland is an opportunity for a fundamental rethink on the taxation of air travel in the UK, says Nathan Stower, chief executive of the British Air Transport Association
When the Scotland Bill completes its journey through Parliament and becomes law in the next few weeks, the Scottish government will gain full control over the taxation of air travel from Scottish airports.
The current administration in Edinburgh is committed publicly to reducing the burden of APD by 50% from 2018, with a view to abolishing it completely when finances allow.
With the polls indicating that a majority SNP government is the most likely outcome of the forthcoming parliamentary elections, in a little over two years there could be a significantly lower aviation tax in place in Scotland.
Great news for businesses and families flying from Scotland and a competitive boost for Scottish airports and airlines that operate from Scotland. Not such good news for businesses, families and operators south of the border.
Ahead of both the Scottish parliamentary elections on 5 May and the Budget in just two weeks’ time, a new analysis of the UK’s tax on flying has been published.
The detailed report, produced by Steer Davies Gleave for the British Air Transport Association (Bata) and entitled ‘Flying High? How Competitive is Air Passenger Duty?’, assesses and benchmarks the UK’s APD against similar taxes in Europe and the rest of the world.
The analysis confirms what we have long argued: UK APD is the highest European aviation tax for short-haul and long-haul flights by a huge margin.
At £13, our short-haul rate is 43% higher than the next highest tax in Greece (£9), nearly twice as high as the rate in Italy (£6.80), more than two times the rate in Germany (£5.70) and more than three times the rate in France (£4.20).
Our competitive position on long-haul flights is even worse. At £73 from 1 April, the UK rate is more than twice the level of the next highest rate in Germany (£32), more than five times the rate levied by France (£14.50), and more than ten times the rate levied by Italy (£6.80).
In fact, the report finds that the UK has the highest rate of tax for long-haul flights in the world, including all of the major OECD economies.
We asked Steer Davies Gleave to find out how Scotland’s competitive positon would change if its next government were to simply reduce current UK rates by 50%.
Within Europe, Scotland would fall from highest to 4th highest for short-haul flights and from highest to second highest for long-haul flights.
Scotland would improve its standing by 38 places over the rest of the UK in the global competitiveness league for tax on short-haul economy flights, and would fall from highest to 9th highest in the world for long-haul economy flights.
The change in Scotland’s competitive position would be significant, if not quite as transformative as you might expect because the UK’s current rates are so much higher than other countries. It’s no wonder that full abolition is the SNP administration’s ultimate objective.
Credit where credit is due. In the last Parliament the Chancellor acknowledged the burden of APD on families by abolishing APD for children.
He also responded to concerns from business and diaspora communities by abolishing bands C and D to return to a single long-haul rate, delivering small but helpful reductions in the tax for travel to India, China and the Far East, as well as to the Caribbean.
However, neither change has made a substantive difference to the UK’s competitive position. Our short-haul tax rate is still the highest in Europe by a long way, and our consolidated long-haul rate is the highest in the world.
Passengers flying from UK airports are still forecast to pay over £3 billion in APD this year.
As our report shows, it wasn’t always thus. Up until 1994 air travel was not taxed. For the first 13 years of its life, APD raised less than £1 billion a year.
It wasn’t until 2010 that annual revenue broke the £2bn barrier and it is only since 2013 that APD has become a c.£3bn tax. It’s the last ten years that have been anomalous, not the other way round.
With the lack of international competitiveness of UK APD now clear and a significant change in Scotland both likely and imminent in airline planning terms, it’s time to ask some fundamental questions.
Should the UK, as an island trading nation, have the highest tax on flying in the world? Does APD help or hurt us to grow our exports or become a more competitive international visitor destination?
Will travellers in England and Wales accept having to pay significantly more tax than people in Scotland to go on holiday, visit their friends and family, or do business?
In my view the status quo on UK rates is neither desirable or sustainable following devolution.
Rather than waiting for Scotland to act, Bata is calling on the Chancellor to take the lead and transform the UK’s competitive position by setting a course for full abolition of APD during this Parliament in Wednesday’s Budget Statement.