Air Passenger Duty – Why we can’t afford to cut it.
Mike Robinson, Chief Executive of RSGS, sits on the Scottish Government’s Air Passenger Duty forum, representing Stop Climate Chaos Scotland and Scottish Environment Link
A debate is raging about the merits or otherwise of cutting Air Passenger Duty (APD) in Scotland ‘a tax levied on each flight dependent on how far the destination’. The Scottish Government has made clear their intention that, further to this tax power being devolved, they will see this tax halved beginning in April 2018 and eventually scrap it altogether ‘when circumstances allow’. But I don’t believe this is affordable, environmentally or economically.
APD was established by the UK treasury in response to reports from the IMF and the World Bank which made it clear that aviation remained one of the least taxed industries in the world. It remains so, and yet for some reason, reports commissioned by the airline industry itself have persuaded the Scottish Government of the riches that await if APD is done away with. This despite the fact that APD is cheap to collect, and raises around £3Billion/year for the UK exchequer. This equates to more than £300 Million in tax revenue in Scotland, so this is a large amount of money to give up.
Giving one of the least taxed industries in the world a tax break during a period of great austerity and recession feels inequitable in the extreme. Especially when all other transport modes are taxed far more heavily and train travel particularly is expected to compete. But cutting APD is also counter intuitive when we are trying to reduce our climate impact. The Scottish Government’s own report recognises that this change will increase carbon emissions through increased flights by as much as 60,000 tonnes CO2e/year.
Their hope is that this cut would positively impact the economy more widely despite its evident carbon impact. But there is little real evidence to support this. In fact aviation has continued to grow despite APD and is currently at record levels in most Scottish airports. So APD is not a significant factor in decision making. Additionally when APD was reduced in Belfast because of concerns about unfair competition from Dublin, it has had little discernible impact. And yet the whole case for a reduction is predicated on increasing traffic. Obviously everybody accepts the environment will suffer, but to be honest this is not being taken seriously.
The best the aviation industry can offer is that eventually they will introduce a variety of efficiencies which will help keep GHG emissions steady after 2020. According to one aviation representative aviation can increase by 60% without increasing emissions from 2020 onwards. But this is not good enough. Many of these efficiencies are currently only promises. But most critically as a society we need to cut back climate emissions before 2050 by 80% of 1990 levels, not hold them steady at 2020 levels.
Leaving aside the rights and wrongs of this approach, are the economic arguments sound? Well this is hugely debatable. The biggest factors affecting flight demand are around the state of the economy, safety, alternatives, time saving and fuel prices etc. and so these will always be the primary drivers. For instance, the only significant dip in aviation demand came on the heels of the financial crisis of 2008/9 because of the failings in the wider economy.
But if it does increase traffic will this bring more money into Scotland? Again, probably, but not as much as will leave. We are a relatively rich nation, so we tend to spend more abroad than visitors spend here. We also travel more than they do. In 2014, according to the UK Government Office for National Statistics, earnings to the UK from overseas residents was £21.8 billion whereas spending abroad by UK residents was £35.5 billion. So the UK economy lost £13.7 Billion net in 2014 from overseas travel (probably around £1 Billion in Scotland). ABTA insist that this is more than offset by sales of sun-cream and cheap t-shirts but this is stretching credibility to breaking point.
Business travel more specifically seems to be driving this case for change, and yet in a recent report from CommonWeal “According to both Edinburgh Airport and IATA, business travel of all kinds is particularly inelastic with regards to pricing as business requiring the physical presence of a worker will generally occur regardless of cost.” The main government premise for cutting APD we are told is to promote business travel and thereby trade. But business travel is less price sensitive – after all many business people choose to pay more in what is after all termed ‘business class’ seats. So are they really going to be swayed by a reduction in APD?
Cutting Air Passenger Duty does not make sense. It is no more affordable economically than it is environmentally. It is inequitable, driving high carbon transport over lower carbon. And I believe it misses a wider point. Many of the people in the half of the population that do fly are clearly prepared to pay this particular tax. So in our efforts to move towards a more sustainable and low carbon economy, cutting APD is, in every sense of the phrase, simply the wrong direction of travel.