Scotland set to cut air travel taxes under new UK deal

Starting 2015, Scotland is likely to cut taxes on passengers flying out of the country following a new tax deal with Britain, according to a report by Reuters.

In line with proposals by the Smith Commission, the UK government last week promised new powers to the Scottish Parliament over a range of financial matters, including control over air passenger duty (APD). The new proposals would allow the Scottish National Party (SNP) to fulfil its promise of scrapping or reducing the tax in Scotland.

Britain levies a tax of between £13.00 ($20.5) and £0.194 in APD depending on flight distance and class of travel, which is charged on each passenger travelling out of the country. The tax cut is expected to encourage English people to travel north of the border to fly as it could make travelling out of Scotland cheaper for passengers.

Airlines and holiday companies have welcomed the plan to cut the APD charges in Scotland. Scrapping APD will boost tourism in Scotland by GBP200m annually, according to British Airways-owner IAG.

‘Removing Scottish APD would see passengers rushing across the border to avoid paying the punitive tax at Newcastle, Manchester or any other English airport,’ said Willie Walsh, the chief executive of IAG. ‘Who could blame them – a family of four flying to the U.S. would save 276 pounds in APD by heading north.’

Regional airline Flybe also said that the tax cuts could benefit Scotland as it will encourage airlines to provide additional routes from Scotland. ‘The move would not only encourage airlines to provide new routes and enhance travel for Scotland’s passengers, but it would also significantly boost economic activity and connectivity for Scotland,’ said Flybe chief executive Saad Hammad.

The new powers and provisions will be implemented only after the UK parliamentary election due in May next year. The move implies the biggest transfer of powers to Scotland from the United Kingdom since 1999 when a Scottish parliament was set up. The changes also come after Scottish separatists lost an independence vote two months ago.