“Kicking the can down the road” seems to be an expression used not only by Westminster, but it’s now doing the rounds in Scottish Government circles. The announcement that APD in Scotland will not change in the foreseeable future, or at least until after April 2020, will come as a blow to many, but should not be a surprise.
The more irrational media will claim it’s another major fudge by the Scottish Government, but as usual some facts seem to get lost in the midst of the hysteria. There do seem to be some real legal issues to resolve, but it’s pretty safe to say the majority want this tax reduced - or even to disappear - with the possible exception of the green lobby. It’s also a pretty sure bet that this is all to do with money rather than growing the economy.
The sticking point is that the Highlands and Islands (mainly Inverness) gets EU- approved state aid to allow no APD tax to be charged on departures from the area. State aid is provided for areas where the population is 12.5 persons or less per sq km. According to the Scottish Government, this represents around £320 million of investment, a not inconsiderable sum, and not something Holyrood would wish to take on when reducing or abolishing this tax elsewhere because it is effectively a double whammy - in firstly losing the aid, and then losing on any reduction of APD elsewhere.
Furthermore, the Scottish Government will not take on a devolved role in APD from Westminster until the state aid situation on the Highlands and Islands is resolved. That can only be resolved through the EU, and of course that’s where Brexit comes in. If we are involved in any sort of single market or customs union, then it is possible we would still be bound by EU rules on state aid. And so the can rolls on…………
Despite all this, some questions do have to be asked. The EU doesn’t set the actual amount of APD being charged from each country, so it is Westminster that has to reduce the amount of APD for Scotland. The estimated income, according to the Government, from APD by 2023 is £1.6 billion per annum, and therefore the overall cost by reducing APD by 50% would be around £780 million to the Scottish Government.
The Highlands and Island Working Group considered that abolishing APD in their area would give the area an economic boost leading to new jobs and improved infrastructure. The same argument therefore holds for the rest of Scotland as well. The Republic of Ireland divested itself of the dreaded air tax in 2011, which affected Northern Ireland to such an extent the UK Government reduced tax to zero in 2013 on direct long-haul flights. Ryanair has just reduced its next winter schedule out of Belfast because of the tax still remaining on short haul. So, ways can be found to get around several challenges and the Scottish Government needs to be more entrepreneurial in its approach to tackle the issue.
We all accept there are real difficulties in trying to find a solution, but there is a suspicion that the First Minister wants to see what the outcome of the chaos in Westminster is going to produce, before committing herself to anything major. Would we be any different if we were in the same situation ? Airlines will invest in Scotland if we reduce or remove the tax, and despite Brexit we still need to plan for the future, so the Government still needs to look beyond the short term, and think of the long term health of our economy and our tourism industry.