Replacement to Air Passenger Duty (APD): consultation analysis

3. Strategic and Policy Objectives

3.1. The consultation document provided a summary of the Scottish Government's strategic and policy objectives around improving Scotland's air connectivity. This included an overview of the key developments in Scotland's air connectivity since 2000, key elements of the Scottish Government's approach to growing Scotland's air connectivity, and how devolution of APD can contribute to achieving this growth.

3.2. This section considers respondents' views on the two consultation questions set out in the consultation document in relation to the Scottish Government's strategic and policy objectives for improving Scotland's air connectivity.

Views on strategic and policy objectives

Q1a: Do you agree with our strategic and policy objectives for improving Scotland's air connectivity? Please answer yes or no.

Q1b: Please explain your answer to Q1a.

3.3. The first consultation question asked whether respondents agreed with the strategic and policy objectives set out in the consultation document. Table 3.1 over the page summarises responses.

3.4. 137 respondents answered Question 1a, 86% of all respondents. Around half of these respondents agreed with the objectives set out in the consultation document; 72 respondents, 53% of those answering the question. A further 65 respondents indicated that they disagreed with the objectives, 47% of those answering the question. Objections to the proposed 50% reduction in APD appeared to be a relatively significant factor for those who disagreed with the strategic and policy objectives; the great majority of those answering "no" at Question 1a had also raised concerns around the proposed reduction in APD (as discussed in the previous section of this report).

3.5. There was some variation in the balance of views across respondent types. Group respondents were more likely than individuals to agree with the strategic and policy objectives; three quarters of group respondents agreed with the Government's strategic and policy objectives, compared to around a third of individuals. Individual respondents accounted for a large majority of those opposed to the objectives. Across group respondents, airline/airline representatives, airport/airport representatives, other transport and travel organisations, and business/tourism respondents were most likely to agree with the strategic and policy objectives. Nearly 9 in 10 respondents across these groups agreed.

Table 3.1: Q1a Do you agree with our strategic and policy objectives for improving Scotland's air connectivity?

	Yes	No	No response	TOTAL
Airlines and airline representatives	10		2	12
Airports and airport representatives	5	2	1	8
Other transport and travel organisations	7	4	2	13
Business, economic development and tourism organisations	21	1	3	25
Professional tax and accountancy organisations			2	2
Environmental organisations	1	3	2	6
Other organisations	2	5	3	10
Group respondents (Total)	46	15	15	76
Individual	26	50	8	84
TOTAL	72	65	23	160
Percentage of all respondents	45%	41%	14%	100%
Percentage of those answering question	53%	47%	-	100%

3.6. A total of 133 respondents provided further written comment at Question 1b, more than 4 in 5 of all respondents. The number and breadth of comments received reflects the scope of the question with responses addressing a broad range of issues including the overall balance of objectives, how these fit with wider Scottish Government strategy and policy, views on the policy of reducing APD, and suggested amendments or additions to the objectives set out in the consultation document. Those providing written comment at Question 1b were evenly balanced between those who supported the strategy and policy objectives (65 providing further comment), and those opposed (62 providing comment). A further 6 respondents did not provide a direct "yes" or "no" answer at Question 1a, but provided written comment.

Comments from those in favour of the strategic and policy objectives

3.7. The profile of the 65 respondents in favour of the objectives who provided written comment was broadly in line with the profile of support set out at Table 3.1 above. The largest groups were business/economic development/tourism organisations (21 providing comment), airlines/airline representatives (9 providing comment), and individuals (20 providing comment). Reflecting this mix of respondent types, written comments raised a broad range of issues relating to the strategic and policy objectives. These are summarised below.

3.8. The majority of respondents making comment in support of the strategic and policy objectives highlighted the potential economic benefits associated with increasing Scotland's international connectivity, including a number of the benefits referenced in the consultation document. Specific evidence around the economic benefits associated with air travel and connectivity was cited by a number of these respondents.

3.9. The specific benefits mentioned by respondents focused on stimulating wider economic growth, including for example international trade and investment, access to a larger and enhanced customer base, better collaboration with organisations outwith the UK, and providing local employment. Several group respondents and individuals cited other countries as illustrations of the correlation between increased air connectivity and wider economic growth. The importance of air connectivity in the context of Scotland's geographic position in relation to Europe was also highlighted, including the extent to which their location relative to major hub airports places Scottish airports at a competitive disadvantage to those in southern England and Europe.

3.10. Most of those emphasising the link between air connectivity and economic growth included specific comments on benefits for tourism growth in Scotland - both in terms of inbound tourism and the benefits associated with outbound tourism. Several of these respondents cited evidence on the potential impact of increased air travel on tourism, including for example recent increases in visitor numbers at Edinburgh Castle alongside growth at Edinburgh airport. However, one 'other' organisation respondent cautioned that, while increased air connectivity would lead to tourism growth in some areas, it may lead to a reduction in other areas.

3.11. A substantial number of those making comment referred to current APD levels having a negative impact on Scotland's air connectivity. This included comments, primarily from aviation industry and business/economic development respondents, supporting points set out in the consultation document around the adverse impact of APD on demand for air travel and on airlines' willingness to invest in route and traffic growth. These respondents suggested that this undermines Scotland's international competitiveness, and highlighted lower APD rates across much of mainland Europe. One airport respondent also specifically suggested that APD has a particularly negative impact for Scotland in the context of difficulties attracting new routes in competition with more densely populated parts of the UK and Europe.

"The current excessive levels of APD in the UK stifle the potential size of inbound markets…negatively impacts outbound leisure and taxes business travel; restricts operating periods of seasonal flight schedules, and adds commercial risk to the decision for airlines to add capacity or frequencies and to launch new routes." Board of Airlines Representatives in the UK

3.12. Respondents also raised a number of other issues relating to Scotland's air connectivity. These included suggestions that a reduction in APD could bring significant consumer benefits in terms of lower fares, expansion in non-stop destinations, and greater frequency of flights. A small number of airline and business/economic development respondents were also concerned that a difference in APD policy between Scotland and the rest of the UK may arise, and have a distorting effect on competition between airports. This was seen as having the potential to result in a loss of passengers to or from regional airports in the north of England, dependent on how Scottish and UK APD policy develops. One airline respondent also warned of the risks in structuring APD to shape airline planning decisions, suggesting that these planning decisions are often complex and that this kind of policy intervention may have unintended (and unwelcome) effects such as preventing airlines from allocating additional aircraft to Scottish airports.

3.13. A minority of those in favour of the strategic and policy objectives set out in the consultation document addressed environmental issues raised by these objectives. These issues were most commonly referenced by business and economic development respondents, and in particular the 13 Chambers of Commerce who submitted standard text responses. These respondents suggested that APD was not intended for use as an environmental tax, and that higher taxes on air passengers will encourage more passengers to use hubs on the European mainland and thus "export of carbon emissions". A professional tax/accountancy respondent cautioned that a differential in APD between Scotland and the rest of the UK may encourage passengers to drive further to use Scottish airports.

3.14. A small number of those expressing support for the overall strategic and policy objectives raised some concerns around specific aspects of the proposed policy. This included questions around the extent to which "the broad-brush measure of reducing the rate of Air Passenger Duty would play any significant role in achieving" the objectives set out in the consultation document - a view which is discussed in further detail at Question 2. These respondents also noted that growth in air travel will lead to a significant increase in carbon emissions, and suggested that these impacts must be carefully considered:

"…we would stress that the wider wellbeing of Scotland should not be compromised in the desire to attract airlines and full cognisance of environmental issues must be considered appropriately." South West Scotland Transport Partnership

3.15. The balance between air connectivity and other travel modes was also highlighted by several business and economic development, other transport and travel, and 'other' group respondents. An other transport and travel respondent suggested that the proposed reduction in APD could be sufficient to undermine the long-term growth of mainland rail lines, and potentially affect the business case for developing high speed rail links to Scotland. A business and economic development respondent also suggested that higher speed train links should be an important part of improving Scotland's connectivity, and should be a consideration for the Scottish replacement tax.

3.16. In addition to the range of points outlined above, a number of those providing comment in support of the strategic and policy objectives suggested amendment or additions to these objectives:

• While some specifically welcomed the emphasis on international connectivity, others wished to see this balanced against the importance of strengthening existing domestic connectivity and links to travel hubs across the rest of the UK and Europe. The quality of surface travel links to the north of Scotland, and the extent to which these provide a viable alternative to air travel for domestic journeys, was also cited as a factor in the importance of domestic air travel for regional economies. Domestic travel networks (within Scotland, and between Scotland and the rest of the UK) were also highlighted as important in enabling economic gain from improved international connectivity to expand beyond the initial travel hub to support Scotland's regional economies.
• An airline respondent disagreed with the objective set out in the consultation document to enhance access to main hubs, suggesting that existing access to these hubs is sufficient, and has prevented Scottish airports from accessing new direct routes.
• The different contexts within which airports across Scotland operate was mentioned by a small number of respondents. This included specific concerns regarding the extent to which some strategic and policy objectives, such as new direct routes to emerging markets, can only be achieved by Edinburgh and Glasgow airports due to their scale and population base. These respondents suggested that the objectives set out in the consultation document do not include sufficient recognition of the importance of regional airports in supporting economic development.
• A business and economic development respondent wished to see an additional objective that all air links should seek to support economic development in Scotland - in terms of business development, international trade and tourism. This was also suggested as a basis for the judgement of the plans to abolish APD in Scotland "when public finances allow", such that this judgement is based on demonstrating that additional tourism and international trade as a result of a reduction in APD, matches current APD revenues.

Comments from those objecting to the strategic and policy objectives

3.17. The 62 respondents providing comment at Question 1b and who were opposed to the strategic and policy objectives included 14 group respondents and 48 individuals. Nearly all of these respondents raised issues regarding the policy principle of a reduction in APD. Specific issues raised in relation to this policy principle are considered in further detail at Section 2 of this report.

3.18. A small number of respondents who had not answered Q1a also provided written comment on the strategic and policy objectives. Comments here raised a number of issues which these respondents felt required further consideration, although these were not necessarily presented as significant flaws in the stated objectives.

3.19. As was the case for comments made in support of the strategic and policy objectives, written comments from those objecting to the objectives raised a broad range of issues. These are summarised below.

3.20. The environmental impact of an increase in Scotland's air connectivity was the issue most commonly raised by those objecting to the objectives; most of the 62 respondents making written comment included reference to environmental impacts. This included a substantial number of respondents noting the increase in carbon emissions predicted by Transport Scotland's analysis of the emissions impact of a reduction in APD, and citing other evidence sources. As such, a substantial proportion of those making comment here suggested that the strategic and policy objectives are inconsistent with the Scottish Government's environmental policy - and specifically the commitment to reduce carbon emissions by 80% by 2050.

3.21. The specific environmental issues highlighted by respondents in relation to the reduction in APD are summarised in the previous section of this report, and are explored in further detail by the analysis of responses to the SEA Screening and Scoping Report consultation published separately.

3.22. Those making comment also raised questions around the extent to which the proposed reduction in APD will achieve the stated objectives. This included comments across a range of respondent types, primarily other transport and travel respondents, professional tax/accountancy organisations, environmental organisations and individuals. Specific concerns included the complexity of decisions on the introduction of new flight routes, the extent to which tourism benefits will be focused on outbound tourism, and some scepticism around the likely scale of economic benefits associated with a reduction in APD - including whether these benefits will be limited to specific sectors or locations. These points are considered in further detail later in this section under Question 2.

3.23. The potential for growth in air connectivity, and particularly domestic air travel, to have a negative impact on other transport modes was also a significant concern for a small number of other transport/travel and individual respondents. These respondents suggested that the focus on increasing air connectivity appeared to be inconsistent with other specific transport objectives such as the East Coast and West Coast mainlines, the extension of HS2 to Scotland, and active travel.

3.24. A substantial number of those making additional comment, and particularly individual respondents, suggested that a reduction in APD would result in a loss of funding available to public services. This was noted as a significant issue in the context of ongoing constraints on public spending, and it was suggested that the reduction in APD may result a shift in revenues from those accruing to the Scottish Government (in the form of APD) to those accruing to the UK Government (in the form of VAT).

3.25. The "fairness" of the strategic and policy objectives, and the reduction in APD specifically, was questioned by a range of respondents including other transport/travel, environmental, 'other' group and individual respondents. Several of these described the objectives as "socially regressive" in that they are likely to most benefit more prosperous parts of the population (i.e. those able to afford air travel). Some noted that an increase in air travel may have an adverse impact on other transport modes which are more widely accessible (such as active travel and, public transport). The fairness of a "tax break" for the aviation industry was also questioned in responses across a number of respondent types:

"We also question the fairness of reducing or removing a tax for one of the least taxed industries in the world. With no tax on fuel, no VAT on airline tickets, removing APD would result in aviation being an effectively untaxed industry." Spokes (the Lothian Cycle Campaign)

3.26. A number of respondents also raised concerns in relation to the evidence base for the strategic and policy objectives, and specifically evidence for the potential benefits of a reduction in APD. This included concerns regarding the aviation industry, who are most likely to benefit from a reduction in APD, having funded evidence cited in the consultation document and also accounting for most APD stakeholder forum members. These respondents also questioned the extent to which this analysis has over-stated any economic benefits, and/or under-represented potential loss of revenue.

3.27. An 'other' organisation respondent also highlighted a range of health factors associated with the objectives set out by the consultation document, and which should be balanced against the potential benefits of increased air connectivity.

3.28. In addition to the range of points outlined above, a number of those providing comment in objection to the strategic and policy objectives suggested amendment or additions to these objectives:

• The stated objectives focus primarily on international connectivity, but should also recognise the importance of connectivity to other UK destinations as being important to Scotland's regional economies. The objectives should give greater recognition of the differences in connectivity between the main Glasgow/Edinburgh airport hubs, and other regional airports.
• The reduction in APD should be structured to stimulate growth in regional airports, alongside easing of congestion around the main Glasgow and Edinburgh hubs - for example, a 100% reduction in APD for airports handling less than 3 million passengers per annum, consistent with European guidelines.
• Devolution of APD to a local authority level, permitting authorities to set APD policy for the airports in their area.

The role of a replacement to APD in achieving the objectives

Q2: How could a Scottish replacement to APD help achieve these objectives?

3.29. A total of 114 respondents provided further written comment at Question 2, 71% of all respondents. Those providing written comment included a mix of those who supported the strategy and policy objectives at Question 1a (63 of those providing comment here) and those opposed to the objectives (44 providing comment). A further 7 of those providing written comment did not provide a direct "yes" or "no" answer at Question 1a.

3.30. Analysis of these responses makes clear the extent to which points raised by respondents in relation to how the Scottish replacement tax may help to achieve the strategic and policy objectives, are linked to respondents' overall support for or opposition to those objectives. We therefore consider each group in turn below.

Views of those in support of the strategic and policy objectives

3.31. A substantial number of those commenting on how the replacement tax can help to achieve the strategic and policy objectives re-iterated their view that APD has a significant adverse impact on demand for air travel and airlines' willingness to invest in route and traffic growth - and as such results in a significant loss of investment and business. This included reference to UK APD being uncompetitive relative to mainland Europe, which compounds Scotland's wider disadvantage in terms of air connectivity relative to other parts of the UK and Europe.

3.32. Respondents referencing the significant impact of UK APD on air travel suggested that its reduction through a replacement tax could provide a significant boost to Scotland's domestic and international connectivity. This was referenced in relation to the ability of Scottish airports to maintain existing routes (including making marginal routes more viable), and also securing new direct routes (both domestic and international connections). Several responses - primarily from airline and airport respondents - cited a range of evidence and estimates of the contribution that a reduction in APD could make to Scotland's connectivity.

"An efficient transport system is one of the key enablers for enhancing productivity and delivering faster, more sustainable growth. Enhancing transport infrastructure and services can open up new markets, increase access to employment and help to build a critical mass of businesses that drive up competitiveness and deliver growth." Scottish Enterprise

3.33. A cut in APD was also seen to send a positive signal to carriers in encouraging investment in new destinations and routes. A small number of respondents suggested that Scotland is more reliant on air travel than other parts of the UK, such that a reduction in APD may have a more pronounced impact. An airport and a business/economic development respondent made specific reference to a number of airlines having made a commitment to increasing capacity in the event of a 50% reduction or abolition of APD. However, a small number of respondents cautioned that capacity constraints at major airports in Scotland and elsewhere in the UK mean that the full potential benefits to Scotland's connectivity are unlikely to be fully realised.

3.34. Those citing benefits to Scotland's connectivity associated with a reduction in APD also made reference to a range of other specific benefits associated with improved connectivity:

• Boosting connectivity will support further development of Scotland as a tourist destination and stimulate economic growth. This included a number of respondents citing detailed evidence on the potential scale of impact in terms of economic growth and job creation.
• A reduction in APD was cited by a number of respondents as having the potential to bring significant consumer benefits in terms of lower fares, more non-stop destinations, and greater frequency of flights.
• An airport/airport representative respondent suggested that ongoing work to improve sustainability of air travel could enable the cut in APD to stimulate growth in air travel without a significant increase in emissions.
• A small number of respondents who supported the Scottish Government's objectives raised concerns that the focus on international connectivity will disadvantage regional airports that cannot deliver certain international routes, and as such will not deliver the full potential economic growth. These respondents suggested that a more "balanced" set of objectives for improving connectivity would be more effective.

Concerns regarding whether and how APD replacement will contribute to achieving objectives

3.35. A substantial number of those making comment here expressed concerns regarding the extent to which an APD replacement will realise the predicted benefits, and ultimately the contribution that a reduction in APD may be able to make in achieving the strategic and policy objectives.

"…we have reservations as to whether the broad-brush measure of reducing the rate of Air Passenger Duty would play any significant role in accomplishing these goals, as (a) much of the impact comes from boosting tourism and it is not clear that this significantly enhances connectivity, and; (b) the strongest boost to connectivity through air travel accrues to the Highlands and Islands, where airports are already exempt from APD." The Royal Society of Edinburgh

3.36. These respondents referred to a range of issues or questions around the likely contribution of a reduction in APD to the Scottish Government's objectives, and which it was felt the consultation document did not adequately address. These included APD's efficiency as a revenue-raising tax, the potential impact on carbon emissions, the extent to which APD is a "regressive" tax, and the need for a detailed assessment of where and how a 50% reduction in APD will contribute to the stated objectives.

3.37. Several respondents suggested that the range and complexity of factors influencing expansion of flight routes, and passenger behaviour, will reduce the extent to which a reduction in APD will result in increased connectivity. It was suggested that a reduction in APD could be part of a strategy to grow international connectivity, boost international competitiveness and increase inbound tourism - but APD is unlikely to be "the only driver (or even the key driver)" of these objectives.

3.38. These respondents also cited evidence of the impact of other changes in APD policy as illustrations of the extent to which passenger behaviour takes a wider range of factors into account than price alone. The likelihood of the UK government reducing APD in response to the Scottish replacement tax was also raised as having the potential to undermine the benefits to Scottish connectivity, and thus to impact on the contribution that the replacement tax can make to the Scottish Government's objectives.

3.39. A substantial number of respondents suggested that the reduction in APD is unlikely to result in a net increase in tourism growth within Scotland in the short to medium term. While most of those raising these concerns acknowledged that a reduction in APD is likely to result in some increase in connectivity, these respondents expressed significant doubts that this would deliver a substantial increase in inbound tourism. Indeed, a small number of respondents suggested that there is potential for a reduction in APD to have a negative net impact on domestic tourism.

"[we] consider that arguments suggesting that the effect of a 50% reduction in APD would be to boost tourism, create jobs and increase productivity in Scotland are not well established." The Royal Society of Edinburgh

3.40. In addition to specific concerns regarding the impact on tourism, some respondents also questioned the extent to which APD reduction could lead to wider economic benefits. In addition to concerns around the extent to which the policy would stimulate domestic tourism, a small number of respondents suggested that there is a need for greater recognition that improved air connectivity has the potential for negative impacts across some sectors, and more detailed analysis of where these negative impacts might fall.

3.41. In addition to questions around the likely scale of tourism and economic benefits, respondents also raised concerns around the likelihood of these economic benefits accruing evenly across Scotland's regions. The potential for Edinburgh and Glasgow airports to benefit disproportionately was specifically highlighted by a small number of respondents. An 'other' organisation respondent also suggested that reducing the rate of APD for all Scottish airports could in effect reduce the advantage afforded by current exemptions to airports in the Highlands and Islands.

3.42. Environmental concerns were again raised in relation to the likelihood of a growth in connectivity resulting in an increase in carbon emissions. This included suggestions that APD is in effect "the only quasi-carbon tax" applied to air travel. Several respondents suggested that delivery of objectives around increased connectivity should be balanced against environmental targets, including specific suggestions from several individual respondents that the implementation of the 50% reduction in APD is structured to incentivise lower emissions linked to air travel.

3.43. In the context of the above points around the negative impact of APD, a number of respondents expressed concerns that a difference in APD policy between Scotland and the rest of the UK will distort competition between airports. This included those in favour of and those opposed to the objectives noting the potential for the reduction in APD for Scotland resulting in negative consequences, dependent on how Scottish and UK APD policy develops.

Comments on how the replacement tax is implemented:

3.44. A number of responses across all respondent types made reference to specific aspects of how the Scottish replacement tax is implemented, as significant for the success of the replacement tax in achieving the strategic and policy objectives:

"The current proposal would need to be carefully designed, structured and targeted in order to achieve the intended aims." Chartered Institute of Logistics and Transport Scotland

3.45. Some suggested that there remained a need for independent analysis of the potential impact of APD reduction, including how changes in connectivity will interact with activity across economic sectors, on which to base the detail of the replacement tax. In this regard, a business/economic development respondent suggested that a Scottish aviation strategy would help to ensure the potential benefits of a Scottish APD replacement tax are realised.

3.46. Respondents also made a range of comments specifically on how the replacement tax could be implemented to achieve the strategic and policy objectives:

• Several respondents wished to see the 50% reduction implemented immediately - this included a small number of airport respondents suggesting that a 50% reduction over the course of a parliament will not attract airlines to invest in more direct routes in the way that an immediate 50% reduction would.
• A substantial number of respondents also emphasised a preference for the replacement tax to be abolished as soon as possible. Several of these respondents suggested that even following a 50% reduction, Scotland would still have a relatively high rate of air travel tax.
• An airline respondent suggested that maintaining the administrative simplicity of UK APD, and ensuring the Scottish replacement tax is compatible with the UK APD system, would be important in maximising the benefits of the reduction in APD.
• Several respondents commented on how the reduction in APD might be applied to specific sectors and routes, and a mix of views were expressed. This included an airline respondent suggesting that a reduction across all routes would maximise the impact, while an airport respondent suggested that the reduction in APD is focused on airports with fewer than 3 million passengers as a means of stimulating growth in regional airports, while reducing growing pressure at key airport hubs. Others suggested a targeted reduction on specific destination bands; an other transport/travel and an individual respondent suggested that direct international flights to band B locations should be the priority for the objective of improving international connectivity, and would also recognise the availability of lower carbon surface travel options for domestic routes. In contrast, another individual respondent suggested that the first priority should be flights from Scotland to other parts of the UK, followed by international flights.
• An 'other' respondent suggested that responsibility for APD policy is further devolved to local authorities, to be defined based on local need.
• A small number of respondents - including an environmental organisation, other group respondent, and several individual respondents - suggested alternative approaches to the proposed replacement for APD. These included a "Frequent Flyer Levy" which would tax air passengers based on how often they travel, and a 'Reformed Aviation Duty' on a per-flight basis to strengthen incentives for aircraft to fly as fully-loaded as possible and to favour more efficient aircraft.