What does cutting Air Passenger Duty mean for the environment?

It has been pretty obvious the SNP is set on cutting Air Passenger Duty (APD) for some time now.

The move has been mentioned by Government ministers repeatedly, with Nicola Sturgeon using her Programme for Government – a programme, incidentally, that failed to mention climate change – to state her intention to halve, and eventually abolish, APD.

As far as the aviation industry is concerned, the cut cannot come soon enough. APD, airlines say, is a punitive tax.

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Environmentalists though, are clearly concerned. There may be a debate over the move, but no one seems to have much confidence in shaking the Scottish Government from its course.

As Mike Robinson, chief executive of the Royal Scottish Geographical Society and the man representing Scottish Environment Link and Stop Climate Chaos in the Government’s APD forum – had put it, it’s “difficult to be optimistic about influencing this in favour of the environment”.

Speaking to Holyrood, he said: “The First Minister has clearly indicated that she will halve APD and that now seems to be a certainty – in fact she has even put a date on it now.

“The plan is to make it work better – because it is widely seen as a punitive tax – but I have to say I am not sure there is a better alternative and I think the crux of it is, is this the best time to be giving away tax revenues?”

Airlines see the tax as punitive. Meanwhile environmentalists, concerned with Scotland’s recurring failure to hit emissions targets, and with the Paris climate change talks fast approaching, do not see a tax discouraging more flights as a bad thing.

Robinson says: “At the end of the day there is a benefit in it being a tax. It was the IMF and the World Bank and HM Treasury that said the aviation industry worldwide is undertaxed relative to every other industry. For me, a big part of this is why one industry is somehow seen to be outside the conditions that other industries are required to comply with.

“So it does feel, just inequitable actually, and clearly it is not a great environmental signal, because everything is predicated on increasing traffic in aviation. The other reason I think it is questionable is that aviation has increased substantially since the introduction of APD, so it is not as if APD has been inhibiting demand that much. It seems to be an odd time to be thinking about getting rid of it.”

Data from the Civil Airline Authority shows that in 2014, ‘terminal passengers’ (a passenger joining or leaving an aircraft at the reporting airport) were the equal highest ever at around 240 million passengers per year.  Cargo demand has been stable – at around 2.5 million tonnes per year, while commercial flights, though down 10 per cent on 2006 levels, are still 25 per cent higher than they were in 1994. So if APD wasn’t inhibiting demand, will cutting it or scrapping it lead to an increase?

“It probably was inhibiting demand a bit, it is just difficult to say how much, and scrapping it will increase demand. That is the whole premise of the aviation industry – that scrapping it will increase demand and it will lead to this magical benefit in other revenues – not in tax revenues but in other income.”

If you accept Robinson’s argument – that demand has increased despite APD – then the effect of cutting it seems pretty clear. More demand, more flights, and an uphill struggle for hitting climate targets.

The other question is what effect it would have on the rest of the UK. The Tories have only had a majority for a few months, and yet already environmental groups and renewable energy companies are deeply worried by the moves made by the Department for Energy and Climate Change – particularly in changes to support for the renewable industry. Is Robinson concerned that if Scotland cuts APD there could be a race to the bottom?

“A race to the bottom is exactly the phrase I would use. I think it would be inevitable. Regional airports are already making noises about this – there is already a discussion about devolving APD to the Welsh Parliament – and I think if there is a disparity within the UK then very quickly you will see other airports responding. Particularly Newcastle and Manchester are anxious about these conversations and, as I understand it, have already made noises at Westminster.”

With Paris coming up, and with Scotland struggling to hit emissions targets year on year, Robinson considers this an odd signal to send. He chaired the short life working group that negotiated the annual targets, with some of the easiest targets coming in the first years. This, he argues, will make hitting these targets even harder.

So what could be done? One option being mooted would be to change the tax so frequent flyers pay more.

“Environmentalists would always lean towards a frequent flyer tax, rather than a blanket tax. But in essence having a passenger tax, where if you fly several times you pay several times, that is what we have. The problem is that APD is very cheap to collect and fairly easy to enforce, so it costs the Treasury very little to collect, and it earns them £3 billion a year in the UK – and around £230-250 million in Scotland. So it is not perfect but the aviation industry insists any tax has to be simple, and APD is simple. The problem with a frequent flyer tax or a per route tax or whatever is that they are much more complicated to administer. APD may not be perfect but it may be the best that is available.”

Ultimately though, Robinson does not seem particularly hopeful. But if APD does get cut, he insists, the SNP must offer something in return.

“I feel that, if we think we can afford to give up £125 million in tax revenue, I would like to see a signal of intent – knowing that is predicated on increasing aviation growth – I would like to see a signal of serious intent in some sort of infrastructure spend that says, ‘this is going to more than reduce those carbon emissions’. But where is that signal? Because I am struggling with that a bit. I have got colleagues and friends that are being impacted by the dualling of the A9, we are building a lovely big bridge across the Forth, but there are not many things that I can point to that suggest we are seriously on route to [hitting emissions targets]. So I would like to see something to mitigate that.”