Scotland to look again at APD

Most visitors from Britain have ceased to think about the significant amount that the UK’s Air Passenger Duty (APD) adds to the price of a ticket from Britain to the Caribbean.

As matters stand, for the majority, including the Diaspora, the assumption is that the battle ended when the UK Chancellor of the Exchequer (Minister of Finance) announced in his autumn statement in 2013 that he would revert to a two band system; thereby levelling the amount charged for all long haul flights.

Not only did this result in a reduction in the APD on fares to the Caribbean, but it was followed by other changes in 2014 when the UK Government said that it was abolishing APD on economy flights for children under 12 from May 1, 2015, and for all travellers under 16 from March 1, 2016, dramatically easing the cost of family travel to the Caribbean and other long haul destinations.

Despite this, the tax remains the highest of its kind in Europe and much of the world, and continues to rise year on year by the level of UK inflation. The consequence is that this year APD will increase from its an April 1, 2016 level of £73 (US$106) to an on April1, 2017 level of £75 (US$109) on coach/economy fares from the UK to the Caribbean and from £146 (US$ 211) to £150 (US$217) in premium economy, club and first.

For the most part Caribbean governments have become silent on the issue. While they remain concerned, this is because they have accepted that APD will continue to escalate not least because they recognise the need for all governments to have to raise revenue at times of austerity. There is also a view that as UK economic recovery has occurred and arrival numbers from Britain to destinations like Jamaica, St Kitts and Barbados have steadily increased, and the price of aviation fuel has fallen and with it some air fares, the issue has become significantly less important.

As a consequence, despite predictable comments from the UK short haul travel industry – in particular about a ‘missed opportunity’ to reform APD, and continuing expressions of concern from carriers like British Airways and Virgin Atlantic – resigned acceptance perhaps best characterises the response to the inflationary increase indicated in the UK’s March 16 budget.

Despite this, what is now emerging is the real possibility that British Government may before long have to review the tax as a result of a recent agreement with the Scottish government to devolve to it the power to levy some aspects of taxation.

This arises because control of the tax is due to be given to Holyrood, the seat of the Scottish Parliament, when a Scotland Bill becomes law, and the ruling Scottish National Party has said it will reduce the duty by 50% between April 2018 and 2021, if as expected they win Scotland’s May 5 election this year.

The objective of Scottish ministers in doing so is that they hope that by eventually abolishing APD in Scotland they will be able to increase the number of direct long and short haul flights.

Launching a consultation on Scottish APD at Edinburgh Airport, Scotland’s Finance Secretary, John Swinney, said that APD acted as a barrier to Scotland’s ability to secure new direct international routes and maintain existing ones. “It is important that we continue to open Scotland up to key and emerging markets in order to further capitalise on the opportunities that exist,” he said.

The Scottish decision has been welcomed by some airlines, but has resulted in a number of UK airports recognising that a differential in rates and particularly abolition could result in passengers deserting airports in the north of England and flying instead from Edinburgh or Glasgow for business and leisure travel particularly if long haul flights were available.

As a consequence, they have begun to raise questions with the government in London about the future of APD.

There is previous clear evidence that a diversionary effect occurs when big tax differential appears in neighbouring jurisdictions. For example, in the case of Northern Island, when APD was in force, passengers were going to Dublin to travel to New York to take advantage of an Irish Republic ticket tax of just €3 (US$3.40). The result was that the UK Government was forced to devolve APD on direct long-haul flights from Northern Ireland in 2013, which then led its devolved assembly to approving a nil rate.

If Scotland is eventually able to attract long haul flights, it will be a development with unpredictable consequences, perhaps resulting in a change in a tax that brings the UK government upwards of £3.1bn (US$4.5bn) annually.