Smith Commission signals the end of Air Passenger Duty in both England and Scotland?

The Smith Commission reported this week on, amongst other things, the devolution of tax powers for Scotland.  You can read a full report on the BBC here.  What is key about the Smith Commission is both Labour and the Conservatives have agreed to support its recommendations, whichever party wins the May 2015 election.

As well as suggesting that the Scottish Parliament should set income tax rates and bands, it also suggested that Air Passenger Duty rates should be fully devolved.

This was not a surprise as Northern Ireland already has the power to set its own APD rates on direct long-haul flights – albeit that there is only one long-haul flight from Northern Ireland!  It does not apply if you pick up a connecting long-haul flight in London.

The soundings so far from the SNP are that they will scrap APD if given the power to do so.  They believe that the increase in revenue from additional tourism and business investment will easily outweigh the loss of APD.

Glasgow Airport

From 1st April 2015, a family of four travelling over 2,000 miles will be paying £284 in APD for four economy tickets and £568 for four business class tickets.

This is a great result if you live in Scotland.  Even if you live nearer Heathrow, you may feel that flying to Edinburgh and coming back to Heathrow on the same plane 30 minutes later before getting onto your long-haul flight was worth it.  For anyone living in England but within easy driving distance of Edinburgh or Glasgow it would be a no-brainer.

A domino reaction may then kick in.  Manchester and Birmingham will start to argue that they are losing out because airlines and passengers are moving to Scottish airports.  It is hard, for example, to see the new United service to New York from Newcastle surviving.  And how does British Airways deal with the fact that its flights will be up to £142 per person cheaper when you start your trip in Scotland?

Change will not be quick in coming, unfortunately.  The Smith Commission proposals will be bundled together in piece of legislation and there are far more contentious issues than APD which will need to be agreed and included.  This may be the beginning of the end though.

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Comments

  1. Some lobbying going on to scrap it in advance of legislation and ahead of next summers high season. Would like to see it scrapped UK wide excepting LHR for a while to promote development throughout regions which might otherwise be curtailed if LHR has similar APD regime. However, following substantial improvment in direct regional options it should br withdrawn at LHR too. Good regional development could remove need for a further runway at LHR, or a shorter third runway might suffice.

    • Erico1875 says:

      A lot of positives came from the recent Scotish Independance vote.
      The joint Lib/Lab/Con establishment got a real shake. The “plebs” were not only revolting. but almost left completely.
      Scrapping APD can only help the economies outside of London.

    • Blackberryaddict says:

      Sorry, but why should APD be scrapped everywhere but Heathrow? Why should I pay more tax flying from Heathrow than someone else from MAN? Why give a tax incentive to airports other than Heathrow? Or indeed airlines that fly from other airports?

      • IMO to give direct flight from regions to many more destinations a chance to flourish. Once that is achieved I would then be in favour of scrapping it at LHR too. Development from regions will always be hampered if they do not get some advantage over LHR. Perhaps, even BA might become British and more competitive again. People will always want to fly to and from LHR, a financial. I believe the benefits of a variable APD would greatly benefit regions without hurting LHR that much. From a passenger perspective…so what, people from regions often had to endure a heathrow transit to get to save on fares or to ger to their destination at all. Si why should London travellers not endure a conbection via MAN or EDI for a while to save a few quid too. Besides, as I statedI don’t think it should be permanent and I don’t think it should apply to other London airports.

        • Well I’m personally sick of people wanting to deliberately hobble London and the South East because the regions haven’t been as successful – it’s jealousy, pure and simple.

          By all means do more to specifically encourage growth in the regions, but helping them by penalising London is grossly unfair. Why should Londoners not have to endure connections? Because they live in a city that can support huge hub airports.

          • It is not about hobbling London and soth east. It is about creating balance in London and south eat and at same time developing regions. LHR continually at or near capacity so I see no issue in developing LGW, LCY, STN and the regions at expense of LHR. Particularly given the latter is a huge political issue that shows no sign of abating anytime soon.

          • Don’t worry Heathrow be made bigger after the ge.

          • You already pay additional “taxes” by flying from LHR ( or at least should do) due to higher carrier charges there than at other UK airports.

            The fact that airlines like BA effectively pool and redistribute those charges across all flights from all uk airports means that in reality those flying from the regions effectively subsidise your LHR flights!

      • Exactly. It should be everywhere or nothing. We should not be penalised for living close to the country’s main airport.

      • Lady London says:

        Because London funds the rest of the country, silly!
        :-)

  2. Hi Raffles. Is the UA Belfast – Newark flight a year round service? Great news if it is..

    • I can help with this one. The very busy United (formerly Continental) service is year round, except when it isn’t. Along with one of the Dublin routes, it’s being suspended on 6 January and restarts 12 March.

  3. *cough* Wales *cough* 😉 Any powers devolved to Scotland will likely be demanded by Wales as well, in fact as part of the Welsh Commission and submission of its future devolution, powers over APD were explicitly requested, with a view to scrapping it, which would make CWL more attractive to airlines and passengers.(though I accept pretty uselesd for most alliances at the moment!)

  4. Does anyone actually believe that BA would reduce fares from Scotland if APD abolished?
    They will simply find another fee! And remember that BA fees are double the level of ApD. These were introduced to cover fuel price hikes and rose. Now fuel is half what it was an not a penny has come off BA fees.
    We really should stop being so obsessed with APD.

    • Blackberryaddict says:

      We should really stop being so obsessed by fuel charges (except for redemptions). The total price is what you pay. How that is made up doesn’t really matter for the majority of tickets. Do you really think that the price of a ticket will fall if the fuel charge is removed?

      • Well the fact that redemption tickets (used to be called free tickets remember), cost 800% more than they did 10 years ago is significant. After all, BA don’t give away Avios for free.
        And what about corporate discounts or shareholder discounts? These have also been devalued as the surcharge is excluded from the discounts.

        When Debenhams offer 10% off, it isn’t 10% off only half the original price is it? Why should BA be different ?

  5. I think you’re being wildly optimistic. I doubt the Scottish government could actually afford to scrap APD (they’d have to compensate the UK government for it). The best I can see is them scrapping it on direct flights from Scotland like Northern Ireland have.

    I also think it’s pretty unlikely to have a domino effect on the rest of the UK.

    • The stated intention is to start by halving APD, this will cost £75 million. Once thats done then the Holyrood government will then look at scrapping completely (another cost of £75 million). the whole point of it being a devolved matter is that the Westminster government doesn’t then get compensated.

      Additional tourism boost to Scotland estimated at £200 million for the economy.

      • No, the whole point of it being devolved is that the Scottish government gets to decide. If APD from Scotland is worth £150m then the Scottish government budget will be cut by £150m with the transfer of APD raising powers. Any decrease in APD revenue = a decrease in Scottish government revenue (which they’ll of course be hoping is more than made up for in the economic gains from it).

        • Referring back to your comment, and further explain my comment and what are the quoted intentions and expectations (and not my opinion), at no point does the Holyrood government have to ‘compensate the UK government’, this is because it will be a devolved matter. Were Holyrood to cut APD without it being devolved then there would be a case for Westminster requiring compensation from Holyrood.

          • Strictly, if APD weren’t devolved and Holyrood purported to cut it, the change would be of no legal effect given that it would be outside the competent of the Parliament’s/SG’s powers.

          • You’re both right! The Smith report says that Scotland would compensate the UK for the administrative costs of making it possible to charge different rate Scotland. You can think of it as Scotland subcontracting collection of APD to the UK, for a fee.

            There’s plenty of precedent for that, e.g. Scotland used to pay an annual charge to the UK to cover the costs of HMRC maintaining the ability to charge a different income tax rate in Scotland (before, ironically, the SNP decided to stop paying it, and therefore give up the right to vary the rate of income tax).

            But in terms of the tax receipts itself, it works in the way you’d expect – when the power is devolved, the block grant is reduced (once only) by the amount of APD, and from then on the APD receipts go to the Scottish government instead.

            (If you want to check, the Smith report is online at https://www.smith-commission.scot/smith-commission-report/ – paras 86-88 cover APD specifically, and para 95(3) says what happens when a tax power is devolved.)

    • It must have a massive effect on Newcastle surely and puts the viability of that airport in doubt becoming another Prestwick. Any canny Geordie would gladly travel 90 / 120 minutes to save big bucks. Methinks you don’t grasp the Smith Commission report relating to “Tax Raising powers” – nothing to do with budget / Westminter allowance.

  6. Here up in Yorkshire lots of us already travel to Dublin and Amsterdam to take advantage of cheaper flights both East and West. It’s crazy that I can save over a £1000 by doing so just for a little bit of inconvenience.

    From Yorkshire it will still be easier to get to Dublin/AMS than EDI or Glasgow, but at least it will be another option.

  7. 1. I don’t see the government giving up APD as it is a straight source of revenue. The perceived long-term benefits of increased tourism would fall on deaf ears. What recent government has been interested in long-term benefits to the country?
    2. I would be surprised if BA and other carriers passed on the APD savings to customers.

    Feel free to call me a pessimist.

  8. Scrapping of APD would remove it completely from redemption flights. The price would come down slightly for cash flights – I did some calculations a while back (i.e. on old data) which show that airlines absorb about 30% of the cost of APD while the market bears about 70%

    I haven’t kept up with this stuff, but the way Raffles has worded it – “What is key about the Smith Commission is both Labour and the Conservatives have agreed to support its recommendations, whichever party wins the May 2015 election” – means very little, as I believe neither party will win the GE!

    • Probably not outright, but I can’t envisage a scenario where one of them isn’t the lead party in a coalition at the very least. And I can’t see many of the smaller parties, bar the Greens, being against a drop in APD.

  9. Interesting to see in Australia they have plans to consider increasing it, which isn’t going down well! (although I did have a chuckle at them saying how high their current rates are, they clearly haven’t heard of our UK rates!)

    http://www.theaustralian.com.au/business/plan-to-hike-airport-departure-tax-slammed-by-tourism-groups/story-e6frg8zx-1227138842891

    • Scotland would likely scrap it due to politics as much as economics.

      You would certainly see busier Scottish airports, and you’d possible see a Scottish “ferry” airline taking people down to England.

      They’d then hope that every passenger realised why they were being inconvenienced and think “this england place is a real stupid set up”

      And I think it would work. APD is a stupid concept unless all countries universally adopt it at the same level. It also hurts the poor much harder than the rich which again in sure Scotland would make very clear.

      You’d see adverts “your family will save £500 from Scotland – the people’s country”

      • ‘ Hurts the poor more than the rich’ I gather you must be using that phrase loosely. I would argue that someone who is ‘poor’ could not afford to take a family of four on a long haul holiday.

        • It’s a relative construct. I don’t think Will is suggesting people down at the foodbank are planning their next longhaul. It is accurate though, a regular family (ie the poor in this analogy) are much harder hit than the banker from the south east

    • Lady London says:

      Well yes the Australian government can charge what it likes, since the only way to get from Australia to another country is to swim, other than flying!

  10. APD should be abolished UK wide for the economic reasons stated and advantages which could be derived. Whilst there will be advantages travelling with direct carriers from Scotland – Qatar, Emirates, United, American……..many of us use our Avios for long haul. Given that British Airways – “London Airways ” requires a “connecting flight” in the London area- not a direct flight – I assume avoidance of APD from that point will not materialise and the only way too achieve this would be an APD free flight from EDI / GLA and hop on Aer Lingus from Dublin.

    • I use ex EU fares all the time and its not to avoid the APD. Indeed I know of no one who starts a journey outside of the UK simply to avoid APD, it simply is not high enough to make financial sense. Ni I use ex EU fares simply because they are up to 75% cheaper often than the same seat from LHR. If you abolish APD it would not stop me going to the EU to start a journey.
      I still maintain that APD is not the problem everyone makes it out to be.

  11. Points about BA failing to pass on full benefits of cut in APD are very likely correct. I have frequently checked fares ex DUB and difference is minimal when compared to fares ex GLA or EDI despite lack of tax ex DUB. Regardinf intention of Scottish Government, I’d be very surprized if an SNP government didn’t scrap it given previous comments from Alex Salmond. What I think all of us want is the same: more competition, more choice, lower fares and more direct flights UK wide. A cut or abolition in APD in short term I believe will benefit whole UK in long term; the effect could be both greater and more rapid were LHR to be disadvantaged at the same time but will ultimately not matter. LHR and by extension B A were never penalised in any way for their market dominance; why should they escape when other companies like BT did not.

  12. Are there Figures available that can show how many flights departing/arriving in the UK are for tourism/business?

    • No, because some/many flights are mixed.

      For many, LHR-JFK will be business but for some it would be tourism for example.

      As airlines don’t generally require details of the reason for your travel it is almost impossible to quantify.

      If someone uses a flight to commute to and from a second home would that be business or tourism? And what if they were commuting from their second/weekend home to return to work? Same airport pairing, same traveller, different reason for travel.

  13. I agree with previous posts that BA etc flights are unlikely to be cheaper from Scotland if APD is removed. However the Scottish Govt owns Prestwick Airport. 4 million people live within a 2 hour drive of that airport including the northwest of England. Attracting airlines there to fly long haul would make sense as though APD revenue would not fall, VAT etc would plus income from hotels et that would spring up. It’s not like they need to build a new airport. I live in Aberdeen and though I would love long haul flights from there commercially would make more sense to have a Scottish hub airport – Prestwick would make more commercial sense as it is pretty empty just now and has good road and rail,links; it could be the Scottish version of Dublin airport and poach business from England. If developed with no APD cost it could compete with Heathrow. Plus I think most trans Atlantic flight go that way anyway departing uk airspace in sw scotland. I know the budget airlines have been on about doing trans Atlantic flights this could be the opportunity. At the moment I have to endure The big London airports to get to anywhere I wish to visit.

    • Londonbus says:

      Prestwick is a turkey. It is like Shannon – it only exists because of older technology and the need for a diversionary airfield. BAA sold it quite soon after privatisation. I appreciate it has ok ish road and rail links. However, to get an airport to act as a hus you need a substantial o/d market locally (that’s where the money is). Prestwick doesn’t fall into this category.

      I suspect the Scottish Government will lose a lot of money on it.

  14. Having a lower APD in the regional airports over LHR would certainly allow those areas to develop commercially. Then once they have London house prices, transport costs and are paying £5 a pint we can put the old equality debate aside 😉