The Highlands and islands could face a “catastrophic” blow as the future of tax-free flights from the region hangs in the balance.
The warning was issued yesterday as a major row erupted in Holyrood over the Scottish Government’s plans to introduce a new, devolved tax on air fares.
Finance Secretary Derek Mackay revealed that a legal wrangle meant he may have to shelve the introduction of the new national levy – or start taxing passengers flying out of the Highlands and Islands for the first time since 2001.
To try to resolve the issue, he has written to the UK Government asking it to pick up the £320million bill for maintaining the discount, claiming Westminster had “got us into this mess”.
But the UK Treasury said the SNP government was trying to “pass the blame”, and Scottish Liberal Democrat leader Willie Rennie suggested Scottish ministers were “recklessly risking the discount’s future”.
Since 2001, travellers departing from airports in the Highlands and islands have been exempt from air passenger duty (APD), which can add hundreds of pounds on a family trip overseas.
Powers over the tax have recently been devolved to Holyrood, and the Scottish Government has been progressing legislation with a view to halving it nationwide, and eventually scrapping the levy entirely.
It emerged earlier this year that the Scottish Government believes it needs permission from the European Commission to retain the Highland discount when the new legislation comes into force, which the UK Government must take forward as the EU member.
But Mr Mackay said yesterday that Westminster had insisted that the Scottish Government would have to accept “full liability for all risks”, potentially including the full bill for the tax discount since 2001 and in the future.
With time running out before the new Air Departure Tax (ADT) was due to be in place in April, Mr Mackay said the Scottish Government was faced with delaying the new tax or not continuing the exemption and cause a “catastrophic impact” on the Highland economy.
The only other option would be to make all the tax bands zero, costing £320million, but SNP ministers say it would be a breach of devolution principles for Holyrood to have to pay “simply to deliver the tax as it currently is”.
Mr Mackay has now written to the UK Government to ask it to increase its funding grant in order to continue with the Highland exemption.
He said: “A delay is not my preferred option — I could agree that only as a last resort — but ADT cannot be put into operation while significant uncertainty hangs over the Highlands and Islands.
“I therefore urge the UK Government to step up to the plate, recognise its responsibilities and support our proposal, which would enable ADT to go forward as planned without causing harm to Highlands and Islands communities.”
But last night a spokesman for the UK Treasury said: “It is disappointing that the Scottish Government has been unable to design a tax which is compliant with EU law.
“It is wrong for them to try and pass the blame for their unwillingness to take responsibility for their own tax.”
Opposition MSPs also criticised the SNP administration in the Scottish Parliament yesterday, with Scottish Conservative Murdo Fraser saying: “Many in Scotland’s tourism sector will feel badly let down by the announcement, which a cynic might conclude has more to do with politics and with the Scottish National Party’s desire to pally up with the Greens again to get its budget through parliament than with any legal technicalities.”
Mr Rennie feared the minister’s statement could prompt the European Commission to close down the discount, asking: “To provide himself with political cover, is he recklessly risking the discount’s future?”
Meanwhile, Scottish Conservative MSP Bill Bowman asked if the Scottish Government had considered devolving the tax to Highland Council to avoid state aid rules, to which Mr Mackay said he would “look seriously at any proposition”.
Highland SNP MSP Kate Forbes said: “On behalf of Highlands and islands communities, Derek Mackay has been pressing the UK Government to get this sorted so that the Scottish Government can continue operating the exemption on a like-for-like basis.
“Yet again this is a case of a government which is so remote from the Highlands and Islands it disregards the pressing need to safeguard the exemption scheme.”
Keep up the pressure
The boss of Highlands and Islands Airports Ltd has said that keeping the region’s air tax exemption is vital for the future of services.
Managing director Inglis Lyon said: “It’s a really important thing for us up here in the Highlands and it is important we retain the current exemption.
“It’s important for short haul traffic but it’s very, very important for long haul traffic because, for example, if you’re going from Inverness to the States, it’s about £75 per person, so for a family of four that is just under £300.
“Having spoken to KLM, having spoken to BA, having spoken to easyJet, they have all said to us the fact that there was no APD was a factor in them deciding to operate here.
“It’s very, very important we keep the pressure on Edinburgh and Westminster to keep the exemption.
“This is now a ball in play between Westminster and Edinburgh and it’s very, very important that it’s a ball that remains in play. Let’s get it fixed.”
Loganair expressed concerns about a potential delay to the introduction of a new Scottish air tax, which the SNP government hopes to cut across the country.
The airline’s managing director Jonathan Hinkles said: “We believe there are strong economic and environmental grounds to exempt all regional flights in Scotland and are very disappointed to learn from today’s statement that this prospect has been delayed.
“Although we understand the position in which the Scottish Government has unfortunately found itself, it looks as though this will now hold back developments that would grow both tourism and business travel within Scotland, and that delay will be detrimental.”