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Who really benefits from a cut in air tax?

Terry smiling headA cut in the cost of flying is on the agenda for the Scottish Government, spurred on by some remarkable claims, not least from the air industry, that it will boost the economy and create 10,000 jobs (or 4,000, depending on whose claims you believe).

It has been a long-held ambition of the SNP to cut air passenger duty and eventually abolish it (in the meantime renaming it air departure tax). It intends to reduce it by 50% next year.

The plan is based on assumptions that this will encourage more direct flights and make Scottish airports more competitive.

Yet the arguments for cutting the tax are unconvincing. For a start, passenger numbers are growing to record levels out of Edinburgh and Glasgow, which suggests travellers are not currently deterred by the tax.

The opposition parties complain that it is denying the Scottish government of £189m of valuable revenue, which is a more persuasive case, though Labour’s claim that it is a tax cut on the ‘wealthy’ is ludicrous. Clearly frequent flyers will benefit, though these include business travellers whose companies will pay their fares. Most travellers are making discretionary decisions and are on average earnings.

Labour misses the point. There are plenty of cheap flights already, with more to follow, including a low-cost service to California which promises a new destination for the stag and hen crowds. More flights are promised to the American Mid-west and Canada. No indication there that taxes are deterring either the airlines or passengers.

There is another key factor here. A cut in APD (or ADT) in Scotland will likely trigger a similar response from England. Its airports and the Westminster government are unlikely to sit back and let Scotland become a new gateway to the world.

Airport bosses in Newcastle have stepped up their campaign to get the government to reform a passenger tax that they claim could lose the region jobs and cash to Scotland.

Nick Jones, chief executive of Newcastle Airport, said the issue of APD is a particular concern for airports in northern England and Northern Ireland. A recent report said that if Scotland reduced the tax to zero and the whole of the UK didn’t follow suit, Newcastle could lose between 500,000 and 900,000 passengers a year.

Mr Jones is urging ministers in Westminster to agree a national solution. “That way, we’ve got a fair system without market distortions and a level playing field throughout the UK,” he says.

In 2015, David Cameron said the Government wouldn’t allow airports and regions to be impacted by the devolution of APD.  “We are not going to accept a situation where there’s unfair tax competition. We will do what’s necessary to make sure England’s regional airports can succeed,” declared the former PM. His successor is unlikely to take a different view.

In Nicola Sturgeon’s speech to the SNP conference in March she said: “The Westminster government is now even openly threatening a race to the bottom in tax.”

Isn’t her plan to cut APD, which would likely be followed by a similar tax in the rest of the UK, doing exactly that?

Cutting air passenger tax won’t benefit the rich, as Labour claims; more likely it will provide cheaper holidays (for those who will fly anyway).
To that extent it will benefit the airports and airlines, and leave the rest of us counting the cost in lost tax revenue.
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