Air Passenger Duty: Flying in the face of austerity

Flight - photo credit: PA

In the week the UKCCC highlighted Scotland’s achievements on climate change, but also encouraged it to do more, the Scottish Government reiterated its determination to cut tax on aviation, despite half of the respondents to its own consultation rejecting this.

The power to change Air Passenger Duty will come as part of a wider suite of proposals for increased devolution, which is likely to get unanimous support at Holyrood. The actual cutting of APD will therefore be tucked away within the budget, and how fiercely it is fought will depend on how strongly the other parties feel about it, and what else they can horse trade through the budget process. Already some are back pedaling.

So whatever happens, it seems, this Government is hell bent on cutting APD. The only reason I can think of is because of its promised economic stimulus. But what stimulus?  What does this amount to in reality? An industry already in effect ‘subsidised’ through various tax exemptions is to be given a further tax break because it might lead to more trade. If you give any industry a tax break of £150-300m / year it will make the industry more profitable. But will it make Scotland more profitable?

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The tax and accountancy bodies don’t believe the economic case (other than PWC who wrote the report for the airlines). It is not only the loss of £300m in certain tax revenues that worry them, but the fact that even if there was an economic benefit (which is unlikely to be to the same scale) most of the companies are not centred in Scotland and pay corporation tax elsewhere, so any corporate tax benefit which does accrue will most likely accrue outwith Scotland.

With tax revenues as stretched as they are (and even worse are forecast to become), local authorities are cutting back right left and centre. And above all else we are choosing to give a £300m tax break to aviation. But why single out aviation? It always seems to get special treatment, as if it is the only industry capable of creating economic stimulus.

But why not give the same break to trains or invest in sustainable transport, buildings efficiency, recycling, and we can all benefit economically and deliver on our need to be sustainable. Surely cheaper trains would benefit more people and create a greater stimulus, after all we use them to get around day to day, and 80 per cent of our trade is within Scotland and the rUK. Trains will be competitively disadvantaged when APD is cut and they already pay more tax than plane-travel as it is.

According to latest comment the intention is to cut APD and thereby open up more trade with China. But is this plausible, that the only way to get China to increase trade is to have a blanket abolishment of tax on all flights? This is a crude measure if ever there was one.

The government needs to be 100 per cent sure of its economic arguments before giving up £300m/year of certain tax revenue during a period of severe austerity. And if this government wants to be a leader in climate change action, it needs to learn to be more consistent too.

Mike Robinson is chief executive of the Royal Scottish Geographical Society and Stop Climate Chaos Scotland's representative on the Scottish Government's APD forum