Meeting of the Parliament 03 June 2014
I welcome the opportunity to come to the chamber to restate the strong case that we have set out for control of air passenger duty coming to Scotland.
As members will be aware, our proposals for APD enjoy widespread support, including from Scotland’s airports and a growing number of airlines. Our case for Scotland having control of APD is based on the facts. Scotland has a decent return from its European network, but we continue to play catch-up in relation to longer-haul international connectivity. Our strategic approach is to work with our airports to entice more direct international services, but also to improve connectivity to hub airports where we have to do that.
There have been some notable successes recently. Edinburgh’s new routes to Chicago and Doha are prime examples of the results of airports and the Government working together to secure success, but those successes have happened despite the current application of APD. Scotland’s airports are absolutely clear and unanimous that APD is a barrier to further success.
I believe that what Scotland has to offer places it in the tourism heavyweight bracket, but it is clear that APD is having a severe impact on the ability of our tourism industry to punch at its proper weight. The rationale is straightforward: more direct international flights make it easier to attract more tourism to our country and increase our share of that vital market.
A stark illustration of the effect of the burden of air passenger duty is that, together with other burdens such as VAT, the United Kingdom as a whole, despite the excellence of our cultural offerings, is rated by the World Economic Forum as the 139th least competitive tourism country from a list of 140. The country occupying 140th place is Chad. Our tourism industry is geared for success and has unmatched natural and human resources to work with but, when a family of four travelling to Scotland from North America are presented with an excess of £276 on their air fare, other parts of Europe can start to become a better alternative.
Changes were announced in the last UK budget, which I will touch on shortly, but research work that was conducted in 2012 estimated that increases in APD rates between 2007 and 2011 could result in a loss of 2.1 million passengers to Scotland’s main airports every year by 2016. The same report concluded that, in the five-year period from 2007, rates for short-haul flights had increased by around 160 per cent and for long-haul flights by up to 360 per cent. In 2014, the figures now stand at 160 per cent and 385 per cent respectively. There can be no justification for that rise. Furthermore, a separate piece of independent economic modelling that was carried out in 2013 concluded that abolishing APD could provide the UK with a short-run increase in gross domestic product of almost half of 1 per cent, rising investment and employment and a permanent boost in GDP into the medium term.
It is worth thinking about the effects of APD in increasing carbon emissions. Many people now fly to Dubai via Dublin because flying directly from Scotland costs more as a result of APD. Some people are adding an environmentally damaging short-haul flight, which means that APD is working against our climate change targets.
For some time, APD has been at the top end of the most expensive aviation duties in Europe, with significant annual rises bucking the European trend. Indeed, there appears to be a growing realisation among our European neighbours of the negative economic impact that air passenger taxes can have. For example, the Irish Government abolished its €3 airport travel tax in April. It is also worth saying that the APD in the UK is the most expensive tax of its kind in the world. We could compare the effects of that change in Ireland with the reduced offering at some Scottish airports.
We should not forget the importance to the economy of our airports in their own right and the vital importance of their success. They are major employers in their areas, directly and through contractors. For example, Glasgow airport employs more than 400 staff directly, while contractors and service providers boost the indirect figure to 4,500. We therefore need to recognise that successful airports are catalysts for economic development, and we should do everything that we can to support that ambition.
There are some misgivings on Opposition benches, but our strong desire for Scotland to have control of APD is not based on the idea of power for the sake of power—it is based on a problem that we have identified, that is widely observed in the industry and which was recognised by the Calman commission in June 2009. The UK Government has had ample opportunity to deal with the issue, but it has chosen not to do so. The Calman commission suggested that, if air passenger duty was devolved, it should also be devolved to Northern Ireland. It has now been devolved to Northern Ireland, but no adequate explanation has as yet been given for why it has not been devolved to Scotland.
For some time, it has been apparent that UK Government aviation policy has been Heathrow-centric. Heathrow’s captive market makes it easier to charge APD at whatever rate suits the Exchequer. I have long argued that regional airports do not have that luxury and have drastically different capacity and demand issues. It is therefore just common sense to acknowledge that a one-size-fits-all policy will not work. The UK Government appears to have only partly seen the merits of that argument, in relation to Northern Ireland.
The recent changes in the UK budget betray the UK Government’s singular focus. The reduction from four bands to two represents a tangible and immediate benefit for existing and soon-to-be-introduced long-haul services. With that in mind, it would be no surprise to see the current direction of travel continue, whereby Heathrow looks to optimise its restricted capacity by encouraging more long-haul services at the expense of regional ones. When APD is charged on both sectors of a domestic service, the disincentive to airlines is clear. The continuing squeeze on our Heathrow connections and the barrier to enhanced international connectivity that APD has provided comprise something of a double whammy to passengers.
The UK budget changes could, in theory, add more potential to our future discussions with the Chinese and other long-haul markets, but they have little impact in the present. Our airports do not have direct scheduled services that fall into the upper two bands for which the rates are being reduced. The managing director of one of our larger airports told me recently that the changes affect around 4 per cent of his business. The impact at Heathrow and Gatwick will be much more significant, of course.
Recognising the need for quick but considered action, our commitments for APD in “Scotland’s Future: Your Guide to an Independent Scotland” deal with the short-term and the future. We are committed to a 50 per cent reduction in the first term of an independent Scottish Parliament with full abolition when public finances allow. The proposal is Scotland focused and does not have to reconcile unintended consequences at Heathrow and other large UK airports—something that continues to be an insurmountable challenge for the UK Government.
Those proposals are recognised as radical but absolutely necessary for the position in which we find ourselves. The industry shares that view. Scotland’s airports have been supportive of APD control coming to Scotland for some time. Indeed, one of the airlines, Flybe, called today to say that it wished us all the best in the debate and hoped for widespread support among the Opposition parties.
The Scottish Chambers of Commerce and other business organisations agree. Willie Walsh, the chief executive of British Airways’s parent group, suggests that APD would be dealt with more progressively in an independent Scotland, and the UK Government would be well advised to listen to that.
I also note Ruth Davidson’s previous position that APD should be abolished and the Liberal Democrats’ position on federalism. We have the grounds for some consensus in Parliament, but the picture is quite confused. I understand that despite the fact that no action has been taken on the recommendation of the Calman commission—which the Conservatives supported—Ruth Davidson felt it necessary to restate her support for the devolution of APD, although that has since been contradicted by a report in The Guardian today. She has also mentioned that she sought the abolition of APD from David Cameron, who refused point blank.
When a vital change that even the Conservatives agree should happen is dismissed out of hand by the UK Prime Minister, it is a perfect example of why we must have independence in Scotland. Perhaps later in the debate we will get some more certainty about the Conservative position.
On the Liberal Democrats, we had a statement from the Secretary of State for Scotland saying that devolution of APD would happen but, lo and behold, it has not happened. Perhaps we can get some clarity from the Liberal Democrats on that and on how they reconcile their refusal to move on the devolution of APD with their position on federalism.