Policy makers and campaigners are considering the impact of the devolution of Air Passenger Duty to Scotland and, potentially, Wales as well
The May elections are significant because of the breadth of their scope. On one day (May 5) we will see people go to the polls for the Northern Ireland, Wales, Scotland and London Assemblies; and for local elections in English cities such as Bristol, Sheffield, Birmingham and Leeds, among many others.
These elections are important in their own right. But, particularly with the elections in the devolved nations and the ‘devo max’ negotiations that have been underway, there are some interesting changes to the constitutional arrangements in the UK that are relevant for business travel – especially the fragmentation of the tax system.
That sounds a bit dry, but we are potentially approaching a point where a business traveller in Newcastle might be faced with the option of using their local airport with a fare that includes Air Passenger Duty (APD), or travelling an hour or so by train up to Edinburgh to utilise a fare without APD. Similarly, a business traveller in Bristol may choose to use their local airport, or drive to Cardiff airport and take advantage of reduced APD for flights originating there.
That is quite a change and is causing policy makers and campaigners to consider the impact that might ripple from a decision around devolution of this relatively simple tax. These people have had some time to consider this already.
Northern Ireland secured control of APD for direct long-haul flights back in 2012 and proceeded to eradicate it to prevent airports in the Irish Republic having an advantage. The SNP has for years had a policy of gaining APD control then halving it and waiting to see its impact before considering removing it altogether. More latterly there are suggestions that following May’s elections, the Welsh Assembly will also be given control over APD in its jurisdiction, too.
Understandably, this is causing disquiet over the respective borders. Newcastle airport and its political representatives have long been calling for consideration on how the removal of APD near to its catchment area will impact on them. Most recently, the West Country’s Conservative representatives are waking up to the impact that Wales slashing APD rates would have on their airports’ passenger numbers and connectivity.
What is the solution?
The easiest, on a technical basis, would be for the UK to just scrap it entirely, and there is no shortage of folk calling for that. But can we see the Treasury giving up the billions this tax brings in just as a global downturn ups the pressure on whether we can hit a deficit elimination target only just set out in the Autumn Statement? It would be a hell of a change of direction if it did come about.
The most radical suggestion coming from some is that we should devolve APD to the new tranche of city-region mayors. In this scenario a mayor for the North East might match the Scottish APD cut, as may the Bristol mayor. But the hotchpotch of APD rates across the country is just too messy for some.
It isn’t a painless give-away for the devolved nations though. European Union rules dictate that national tax rates must not vary in a way that is more favourable to individual regions. This ‘fiscal neutrality’ means central government funding for the relevant local authorities would need to be reduced alongside the devolution of powers over APD – with the size of reduction equivalent to the amount of APD that central government would have collected in that area, had APD not been devolved.
That would mean, for example, the Welsh Assembly would need to be 100 per cent convinced an APD cut would stimulate trade that would more than make up for the pain of a grant cut. It may be that English regional airports’ ultimate saviour is that cutting APD across the border is just too painful.
Gareth Morgan is a political lobbyist and director with Cavendish Communications (cavendishpc.co.uk). He is an advisor to the GTMC.