New levy is delayed
Mackay attacks ‘unacceptable conditions’ on air tax
New air tax will be delayed to protect highlands economy
The Scottish Government’s plans to cut taxes for air travellers have been put on hold because of issues over state aid.
Finance Secretary Derek Mackay accused Westminster of placing “unacceptable conditions” on Holyrood notifying the European Commission of an exemption from the new Air Departure Tax for Highlands and Islands.
He has has proposed an alternative financial solution to the UK Government that would enable exemption to be allowed.
An exemption from Air Passenger Duty for flights from the Highlands and Islands has been in place since 2001. Transferring the exemption to the new Air Departure Tax requires notification to and assessment by the European Commission under State Aid rules, in compliance with EU law.
In a statement to Parliament, Finance Secretary Derek Mackay said that the Scottish Government would not put the economies of the Highlands and Islands at risk and outlined an alternative proposal, which would use tax rates and bands to provide the same benefit for all Highlands and Islands flights including connecting flights.
Mr Mackay has criticised Westminster over what he calls “flaws in the devolution of APD” and called on the UK Government to act in line with the fiscal framework to ensure there is no detriment to the Scottish Government as a result of the costs required to enable the tax to be properly transferred.
The UK Government has suggested delaying the transfer of the tax indefinitely in the absence of a solution.
Derek Mackay: “I urge the UK government to step up to the plate”
Mr Mackay said: “We have set out a clear aim to reduce the burden of air passenger taxation by 50% and to abolish the tax altogether when resources permit. That commitment will both help to boost international connectivity and generate sustainable growth – priorities that are even more pressing as a result of the EU referendum.
“To match the exemption for all Highland and Island flights including connecting flights would require the Scottish Government to forego annual revenues of more than £320m.
“I have suggested that the UK Government agrees to amend the Block Grant Adjustment to enable the Scottish Government to deliver support for the Highlands and Islands in a way that ensures neither the Highlands and Islands or Scotland’s public finances suffer as a result of this apparent defect in Air Passenger Duty.
“I cannot see ADT put into operation with this significant uncertainty hanging over the Highlands and Islands. I therefore urge the UK Government to step up to the plate, to recognise their responsibilities and to support our proposal which would enable ADT to go forward as planned without causing harm to the Highlands and Islands economies.”
Liberal Democrat leader Willie Rennie accused the SNP government of being reckless and putting the Highlands economy at risk.
“Liberal Democrats are pleased that the cuts to Air Passenger Duty have been stopped for the foreseeable future. This means more investment for public services and greater protection for the environment.” he said.
“Yet, it is reckless of the SNP Government to put at risk the future of the Highlands and Islands exemption by claiming it is defective and not compliant with EU Law. This may force the European Commission to close down the scheme which has served the people and economy of the Highlands and Islands for sixteen years.
“It is reckless for the Finance Secretary to make such claims about the exemption simply to provide him political cover for the shambles of his air tax policy. If the European Commission does take action after all these years the Finance Secretary will be responsible for any increase in air fares to the Highlands and Islands.”
Labour has urged the government to ditch the entire plan, arguing that cutting the tax would be the wrong priority at the wrong time.
The SNP manifesto commits to halving air departure tax by the end of the parliament, a move that would cost £189million by 2021/22.
Labour has campaigned against the tax cut for months, and says responses to the public consultation on cutting the tax showed a majority of respondents were opposed.
Its transport spokesman Neil Bibby said: “The SNP should listen to Labour and ditch this tax cut for frequent flyers.
“Cutting the air departure tax will not make Scotland fairer or greener – all it will mean is less funding for hard pressed public services while the richest few get yet another bonus.
“Cutting this tax also risks a race to the bottom across the UK. The Tory government needs no persuasion to cut taxes for the richest and their partners in the DUP want the tax abolished completely.
“When working class kids aren’t getting the skills they need to get on in life it shouldn’t be the SNP Government’s priority to make a business class flight cheaper.”
Gordon Dewar: ‘tourism industry is missing out’ (photo by Terry Murden)
Edinburgh airport chief executive Gordon Dewar expressed his dismay at the delay.
“We are naturally frustrated as this is a conversation we have been having for far too long without any meaningful outcome, and the tourism industry continues to miss out on the benefits of this cut.
“We do appreciate that there are legal complexities around this issue and that the government is following its own legal advice, while the UK Government will also be acting on its advice about whether this existing exemption breaches state aid rules.
“However, our understanding of the issue is that the current exemption is unlikely to be challenged and even if it is, it’s likely to be found compatible with state aid rules.
“The Scottish Government must show leadership and a commitment to deliver by working on two fronts. It must plan for scenarios in which the UK Government finds a solution to this complexity, but also work on implementing Scotland’s own scheme if not so another window of opportunity doesn’t fly by without this promise being fulfilled.
“And that opportunity is not just for the aviation industry – it will spread into the wider Scottish economy. The tourism and business sectors will benefit if their markets become more accessible so we cannot afford to cap our success. We need the government to deliver so we can all plan and capitalise on the benefits that will open up to us.”