New Report – APD Cut: A Flighty Economic Case

Ben Wray

Report by Dr Craig Dalzell finds that the aviation industry’s analysis has not accounted for the impact of a fall in domestic tourism from the APD cut

A NEW Common Weal report argues that the case made by the Airport lobby for a 50% cut in Air Passenger Duty omits key facts, and in reality the tax cut could damage the Scottish economy while reducing funding for public services. 

‘APD Cut: A Flighty Economic Case’, published by Common Weal and authored by Dr Craig Dalzell in response to the Scottish Government’s open consultation on its planned APD cut, can be accessed in full here.

It challenges the case made in two reports – from Edinburgh Airport and PwC on behalf of a number of aviation companies – that reducing APD by 50% will lead to sufficient economic growth to cover the short-fall in revenue from the tax cut. The two reports commissioned by the Airport lobby are the basis on which the case for an APD cut has been made.

Key points in the report include:

– The case for increases in tourist traffic is substantially undermined by the impact of cheaper tickets inducing more domestic tourists taking foreign trips instead.

– The spending power of the outbound tourists most likely to take more trips outside of Scotland is greater than the typical spending power of the inbound tourists most likely to take more trips to Scotland.

– The inbound tourists which have a greater spending power than typical domestic tourists are the least likely to be sensitive to airline ticket prices.

– Inbound tourists are generally more weakly linked to the economy than consumers more likely to be induced to leave which may lead to negative economic impacts even in the face of increased tourist numbers.

– The case for business growth due to an APD cut appears particularly weak as business flights are driven by need and time pressures rather than price.

– The case for an APD cut encouraging more visits to Scotland for the purposes of international trade and business deals is particularly weak as long haul business flights between the UK and the US and Asia is almost entirely price insensitive.

– If an APD cut results in a transfer of revenue from APD to corporation tax there may be deeper implications for the robustness of the Scottish budget under the devolved tax structure. This will be exacerbated in the case of corporate profits transferred outside of the UK entirely.

– The greater impact on the transport network due to increased traffic  as well as the economic imbalances created by the APD cut inducing greater traffic in the Central Belt but little growth elsewhere.

– If the reduction in revenue due to the APD cut is not at least recouped in full then additional cuts in public spending may be required.