Air departure tax in Scotland: an economic assessment

Appendix B – Sensitivity Tests

• Core Case - DfT Core (Central (unconstrained)) Growth / Core ( UK Aviation Forecasts) Elasticities - in each chart the ‘core’ case is shown with a solid line.

• DfT Low Growth / Core ( UK Aviation Forecasts) Elasticities
• DfT Low Growth / Intervistas Elasticities (higher than DfT)
• DfT Low Growth / Gillen et al Elasticities (higher than DfT and Intervistas)
• DfT Core (Central (unconstrained)) Growth / Intervistas Elasticities
• DfT Core (Central (unconstrained)) Growth / Gillen et al Elasticities
• DfT High Growth / Core ( UK Aviation Forecasts) Elasticities
• DfT High Growth / Intervistas Elasticities
• DfT High Growth / Gillen et al Elasticities

Scenario 1a: 100% reduction in Band A: Full Pass-Through

Figure B.1: ADT Payable Movements & Receipts – Scenario 1a (Full pass-through)

Whilst the Core assumptions result in a figure of 13.8m payable movements by 2022, this figure could range from 13.2m to 15.6m, depending on the combination of growth scenarios and elasticities used. Under this scenario, Band A passengers (who will receive the full reduction in fares) will not pay ADT and ADT receipts will be the same (i.e. Band B only), regardless of the elasticity set used. Varying the underlying growth scenario used would see the core 2022 tax receipts of £117m vary in the range of £113m to £126m.

Scenario 1b: 100% reduction in Band A: Partial Pass-Through

Figure B.2: ADT Payable Movements & Receipts – Scenario 1b (Partial pass-through)

Whilst the Core assumptions result in a figure of 14.2m payable movements by 2027, this figure could range from 13.6m to 15.5m, depending on the combination of growth scenarios and elasticities used. Under this scenario, Band A passengers (who will receive the partial reduction in fares and a partial supply side uplift) will not pay ADT and ADT receipts will be the same (i.e. Band B only), regardless of the elasticity set used. The ADT receipts will therefore be the same as Scenario 1a and varying the underlying growth scenario used would see the core 2022 tax receipts of £117m vary in the range of £113m to £126m.

Scenario 1c: 100% reduction in Band A: No Pass-Through

Figure B.3: ADT Payable Movements & Receipts – Scenario 1c (No pass-through)

Whilst the Core assumptions result in a figure of 14.6m payable movements by 2027, this figure could range from 14.0m to 15.5m depending on the combination of growth scenarios and elasticities used. Under this scenario, Band A passengers (who will receive a zero reduction in fares and the full supply side uplift) will not pay ADT and ADT receipts will be the same (i.e. Band B only), regardless of the elasticity set used. The ADT receipts will therefore be the same as Scenario 1a and varying the underlying growth scenario used would see the core 2022 tax receipts of £117m vary in the range of £113m to £126m.

Scenario 2a: 100% reduction in Band B: Full Pass-Through

Figure B.4: ADT Payable Movements & Receipts – Scenario 2a (Full pass-through)

Whilst the Core assumptions result in a figure of 13.2m payable movements by 2022, this figure could range from 12.7m to 14.3m depending on the combination of growth scenarios and elasticities used. Under this scenario, Band B passengers (who will receive the full reduction in fares) will not pay ADT and ADT receipts will be the same (i.e. Band A only), regardless of the elasticity set used. Varying the underlying growth scenario used would see the core 2022 tax receipts of £153m vary in the range of £146m to £164m.

Scenario 2b: 100% reduction in Band B: Partial Pass-Through

Figure B.5: ADT Payable Movements & Receipts – Scenario 2b (Partial pass-through)

Whilst the Core assumptions result in a figure of 13.4m payable movements by 2022, this figure could range from 12.8m to 14.4m, depending on the combination of growth scenarios and elasticities used. Under this scenario, Band B passengers (who will receive the partial reduction in fares and a partial supply side uplift) will not pay ADT and ADT receipts will be the same (i.e. Band A only), regardless of the elasticity set used. The ADT receipts will therefore be the same as Scenario 2a and varying the underlying growth scenario used would see the core 2022 tax receipts of £153m vary in the range of £146m to £164m.

Scenario 2c: 100% reduction in Band B: Zero Pass-through

Figure B.6: ADT Payable Movements & Receipts – Scenario 2c (Zero pass-through)

Whilst the Core assumptions result in a figure of 13.5m payable movements by 2022, this figure could range from 13.0m to 14.5m, depending on the combination of growth scenarios and elasticities used. Under this scenario, Band B passengers (who will receive no reduction in fares and a full supply side uplift) will not pay ADT and ADT receipts will be the same (i.e. Band A only), regardless of the elasticity set used. The ADT receipts will therefore be the same as Scenario 2a and varying the underlying growth scenario used would see the core 2022 tax receipts of £153m vary in the range of £146m to £164m.

Scenario 3a: 50% reduction in Band A & Band B: Full Pass-Through

Figure B.7: ADT Payable Movements & Receipts – Scenario 3a (Full pass-through)

Whilst the Core assumptions result in a figure of 13.5m payable movements by 2022, this figure could range from 12.9m to 14.9m, depending on the combination of growth scenarios and elasticities used. Under this scenario, both Band A and Band B passengers will receive the full reduction in fares, and thus the application of different elasticities has an impact on tax receipts. Varying the elasticities and underlying growth scenario used would see the core 2022 tax receipts of £138m vary in the range of £133m to £154m.

Scenario 3b: 50% reduction in Band A & Band B: Partial Pass-Through

Figure B.8: ADT Payable Movements & Receipts – Scenario 3b (Partial pass-through)

Whilst the Core assumptions result in a figure of 13.8m payable movements by 2022, this figure could range from 13.3m to 15.0m, depending on the combination of growth scenarios and elasticities used. Under this scenario, both Band A and Band B passengers will receive the partial reduction in fares (and a partial supply side uplift), and thus the application of different elasticities has an impact on tax receipts. Varying the elasticities and underlying growth scenario used would see the core 2022 tax receipts of £143m vary in the range of £138m to £156m.

Scenario 3c: 50% reduction in Band A & Band B: Zero Pass-Through

Figure B.9: ADT Payable Movements & Receipts – Scenario 3c (No pass-through)

Whilst the Core assumptions result in a figure of 14.2m payable movements by 2022, this figure could range from 13.6m to 15.1m, depending on the combination of growth scenarios and elasticities used. Under this scenario, both Band A and Band B passengers will receive no partial reduction in fares (there is a full supply side response though), and thus the application of different elasticities has no impact on tax receipts. Varying the underlying growth scenario used would see the core 2022 tax receipts of £149m vary in the range of £143m to £159m.