Scottish air tax cuts delay threatened by political row

Edinburgh Airport has seen major expansion despite air passenger duty. Picture: David Moir
Edinburgh Airport has seen major expansion despite air passenger duty. Picture: David Moir
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Plans to cut air taxes face being delayed with Scottish and UK ministers at loggerheads over responsibility for the hold-up.

The row came as the SNP government was accused of trying to shelve its controversial proposal to gain Greens' support for its forthcoming budget.

Labour said the problem provided "a convenient opportunity to kick a bad policy into the long grass".

Ministers had hoped to start halving the tax rate from next April when the UK-wide air passenger duty (APD) is replaced in Scotland by air departure tax (ADT)

However, finance secretary Derek Mackay said today the reductions were being held up by the need to get approval for continuing the current exemption for Highlands and Islands airports.

He accused the UK Government of placing "unacceptable conditions" on notifying the European Commission that Scotland planned to continue the exemption under the new tax.

But the Treasury blamed the Scottish Government for being "unable to design a tax which is compliant with EU law".

The SNP plans to halve the current APD rates of £13 per passenger on shorter flights and £78 for trips over 2,000 miles.

However, the timing of the cut is now in doubt because of the need to win European Commission approval to continue the Highlands exemption under the new tax, which has been in force since 2001.

The Scottish Government said transferring the exemption to ADT required "notification to and assessment by the commission under state aid rules, in compliance with EU law."

Mr Mackay told MSPs he had an alternative proposal, using tax rates and bands, which would "provide the same benefit for all Highlands and Islands flights including connecting flights".

However, he said the UK Government had suggested delaying the transfer of the tax indefinitely in the absence of a solution.

Mr Mackay said: “To match the exemption for all Highland and Island flights including connecting flights would require the Scottish Government to forego annual revenues of more than £320m.

“I have suggested that the UK Government agrees to amend the Block Grant Adjustment to enable the Scottish Government to deliver support for the Highlands and Islands in a way that ensures neither the Highlands and Islands or Scotland’s public finances suffer as a result of this apparent defect in APD.

“I cannot see ADT put into operation with this significant uncertainty hanging over the Highlands and Islands.

"I therefore urge the UK Government to step up to the plate, to recognise their responsibilities and to support our proposal which would enable ADT to go forward as planned without causing harm to the Highlands and Islands economies.”

However, the Treasury said the fault lay with the SNP.

A spokeswoman said: “It is disappointing the Scottish Government has been unable to design a tax which is compliant with EU law.

"It is wrong for them to try and pass the blame for their unwillingness to take responsibility for their own tax.”

"The UK Government remains committed to the devolution of APD, and has worked extensively to help the Scottish Government design its own tax, including offering to make a notification to the European Commission.

"It was made clear to the Scottish Government that, in making a notification, it needed to accept the clear risks of that.

"We have also worked with them to identify several alternative solutions, all of which the Scottish Government decided against."

Scottish Conservative finance spokesman Murdo Fraser said: “The policy of reducing this tax has been a longstanding one, and eagerly awaited by the tourism industry.

“With the support of the Scottish Conservatives, there is a clear majority at Holyrood for making sure it happens.

“It’s therefore extremely disappointing to see the SNP trying to weasel out of this commitment, and many in the sector will feel badly let down.

“A cynic might conclude that today’s announcement has more to do with politics, and the SNP’s desire to cosy up to the Greens over the budget again, than legal technicalities.”

Scottish Greens finance spokesman Patrick Harvie said the news was "the latest nail in the coffin of a plan that has no social, economic or environmental credibility".

"Scottish Ministers might feel they need a technical excuse for dropping their plans this year, but the longer term issue remains that the SNP's policy on this is unjust and unsustainable.

"We cannot have cuts to aviation tax in the forthcoming Scottish budget or there's no possibility of Green MSPs and Scottish Ministers meeting to discuss a way forward.

Scottish Labour transport spokesman Neil Bibby said: “The SNP is using a convenient opportunity to kick a bad policy into the long grass.

“The SNP’s ADT cut is bad policy. Instead of delaying it, it should be cancelled. The SNP cannot justify a multi-million-pound tax cut for the frequent flying few at a time of real hardship and austerity for the people of this country.”

Scottish Liberal Democrat leader Willie Rennie said: "It is reckless of the SNP Government to put at risk the future of the Highlands and Islands exemption by claiming it is defective and not compliant with EU law.

"This may force the European Commission to close down the scheme which has served the people and economy of the Highlands and Islands for sixteen years."

However, aviation industry leaders said the problem could be resolved.

Gordon Dewar, chief executive of Edinburgh Airport - Scotland's busiest - said: “We are naturally frustrated as this is a conversation we have been having for far too long without any meaningful outcome, and the tourism industry continues to miss out on the benefits of this cut.

"Our understanding of the issue is that the current exemption is unlikely to be challenged and even if it is, it’s likely to be found compatible with state aid rules."

Tim Alderslade, chief executive of Airlines UK, said: “We have been engaging with the Scottish Government and civil servants at Westminster about the situation with respect to the state aid exemption for HIAL airports and believe that a solution can be reached."