Cutting Air Passenger Duty is the wrong budget priority

The scale and destination of the cuts to the Scottish Budget will become apparent with the publication of the Scottish government's spending plans on Thursday. This is not the time to cut taxes such as Air Passenger Duty.

This is first Scottish budget with the full devolved fiscal powers in play. The Tories, despite voting for the new powers, don't want to use them. The SNP wants to use them a little. Labour, Liberals and Greens want to take a different course to Tory austerity, by making greater use of the powers.

I may not agree with the Scottish government's cautious approach, but I understand the argument. A tax rise for most of us isn't likely to be popular, particularly when wages are depressed. However, railing against Tory austerity is simply not credible when you have the powers to take a different course and more importantly, you are actually cutting taxes for the better off.

The proposed cut in Air Passenger Duty (APD) follows a consultation, which followed predictable battle lines. The airports and airlines think it is a wonderful idea and churn out nicely rounded claims on jobs and revenue. The environment lobby responds by pointing to the extra emissions the plan will pump into the atmosphere, damaging our already overheating planet.

For me the case against a cut in APD has four pillars.

Firstly, even if it had economic merit, we can't afford it. Today's Fraser of Allander Institute report lays bare the dire state of Scotland's public finances. This leaves Derek MacKay with few options. He will claim to be protecting the NHS budget, while awarding a 'fair' settlement to local government. Needless to say, this is impossible and is achieved through some cosmetic double counting of the social care budget. 

APD yields more than £300m to the Scottish Budget. That's a significant amount of revenue, more than half of last year's cut to the local government budget and the equivalent of more than half a penny on income tax. Even cutting it by half will result in significant cuts to jobs and services.

Secondly, for a government that claims to be 'world leading' on climate change, this tax cut could have a damaging impact on the environment. The Scottish government's own analysis of a 50% cut in APD estimated a consequential increase in emissions of up to 60,000 tonnes CO2 per year. Air travel already accounts for 13% of Scottish greenhouse gas emissions from transport - a sector that has not contributed nearly enough to climate change action. Yes, we are making progress in reducing emissions in Scotland, but mostly on the back of the recession and the closure of Longannet power station.

Thirdly, air travel already has a privileged tax position. Airfares are not subject to VAT and aviation fuel is tax-free. Implementing fuel duty at the same rate as private fuel tax would result in £5.7 billion of revenue at UK level, adding VAT to tickets would result in £4.0 billion, and the abolition of duty free would yield £0.4 billion. This means the aviation industry already benefits from an annual tax exemption of at least £10 billion, which amounts to around £1 billion lost to Scotland. In contrast, rail fares have been increasing at three times the rate of wages, for a service that many more of us rely on every day.

Fourthly, this is a regressive tax proposal. Propensity to fly increases with income and socio-economic group, and 15% of the population of the UK take over 70% of all flights. Scotland’s lower income groups will achieve no or minimal benefit from a cut to APD, and higher earners (and corporations) will achieve a disproportionate benefit. No wonder the Tories have abandoned their manifesto commitment to oppose the APD cut!

The Scottish government's spending plans are challenging enough without the additional burden of a cut in APD . It is simply unaffordable, damaging to the environment and provides more support to an already tax privileged sector. A tax cut for the better off is a strange priority for a government that claims to be opposed to austerity.