Rightly one of the most popular measures in George Osborne’s 2014 Autumn Statement was the decision to scrap Air Passenger Duty (APD) on children’s flights. At a stroke, the Chancellor made it cheaper for hardworking families across the country to go on holiday or visit friends and family abroad - a well-deserved reward in times of financial constraint.
This measure was also a long overdue reform of a stealth tax that has steadily – and perniciously – increased over the last decade, with the rate charged on long-haul flights increasing at 20 times the rate of inflation between 1994 and 2014. Apart from Chad, the air tax paid by UK passengers is the highest in the world. Even though children’s flights are now exempt, APD still adds £26 to the cost of a family of four’s economy class flights to destinations in Europe and £138 to economy class flights to destinations such as the US. Only four European countries - Austria, Germany, France and Italy - levy a similar tax. A number of others, such as Denmark, the Netherlands and Ireland, have scrapped their departure taxes entirely in recent years, recognising that they were damaging to competitiveness. UK passengers pay more than twice as much per flight than those in Germany, which charges the second highest rate in Europe. This makes the UK a less attractive destination for foreign tourists, who end up spending their dollars, yen and renminbi elsewhere.
Thanks to further UK fiscal devolution now Scotland is set to join the ranks of European destinations with more competitive rates of APD than the rest of the UK.
In the small print of the new devolution settlement is a proposal to give Scotland control of APD. I fundamentally disagree with much of the Sottish government’s policies but they are right to recognise the negative impact that high APD rates have on the UK economy. The administration in Edinburgh has announced that it will cut APD by 50% from 2018 with a view to abolishing it in the longer term to improve Scotland’s competiveness.
The problem, however, is that Treasury modelling has shown that any APD reduction in Scotland would have a detrimental impact on airports and other travel businesses in other parts of the UK, and distort what is a highly competitive aviation and tourism marketplace.
If not to be abolished, APD should be a lower, fairer and consistent tax nationwide, not a postcode lottery.
Disparate levels of APD would create an unfair advantage for businesses that use airports in Scotland compared to the rest of the UK. Why should a small electronic components business from Glasgow trading with China pay half as much APD as a similar business from Grimsby for example?
Uneven treatment of APD would also make it more expensive for some families to go on holiday or visit friends and family abroad than others. Is it fair for a family from, say, Falmouth to pay double the amount of APD on their summer holiday as a family from Falkirk?
These concerns are known and acknowledged by the Government. During the election the Prime Minister rightly warned: “The SNP government in Scotland is committed to using its new powers to cut and eventually abolish Air Passenger Duty from Scottish airports. This could distort competition and see business drawn north of the border with a huge impact on airports in the rest of our country so we’re reviewing the way Air Passenger Duty works to make sure other cities don’t lose out.” In a separate interview he added: “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.”
Like all businesses, the travel and aviation sectors need certainty. I therefore urge the Chancellor to use his Budget in March to significantly reduce APD to at least half the current levels on short-haul and long-haul flights across all of the UK. It is fair that the entirety of the UK – not just Scotland – benefits from a cut to APD of at least 50%.
No matter where in the UK you live, you pay the same amount of tax when you buy a pint or go out for a meal – why should APD be any different?
Henry Smith is the Conservative MP for Crawley