Air Departure Tax (Scotland) Bill – Stage 1 debate
Finance Secretary Derek Mackay
Scottish Parliament, 25 April 2017
Thank you, Presiding Officer. I am delighted to open the Stage 1 debate on the Air Departure Tax (Scotland) Bill.
The devolution of powers over Air Passenger Duty to the Scottish Parliament was recommended by the Smith Commission in November 2014. Following the passage of the Scotland Act 2016, the Scottish Parliament now has the power to legislate for Air Departure Tax, which will replace APD in Scotland.
In the Programme for Government the Scottish Government announced that a Bill would be introduced to establish a tax to replace APD in Scotland. The Air Departure Tax (Scotland) Bill was subsequently introduced on 19 December 2016 delivering on this commitment.
Under terms agreed between the Scottish and UK Governments in the fiscal framework, APD will cease to apply in Scotland from 1 April 2018, the Block Grant will be adjusted downwards, and, if this Bill is enacted, ADT will replace it from that date.
Separately, the Scottish Fiscal Commission will assume responsibility for producing independent forecasts of receipts from ADT for future Scottish Government Budgets. These forecasts will reflect the Scottish Government’s policy for ADT at that time.
The Bill establishes the general structure and operation of ADT, which is a tax to be charged on the carriage of passengers on flights that begin in Scotland. The tax will apply only for the carriage of chargeable passengers on chargeable aircraft, and will be payable by the aircraft operator.
Revenue Scotland, Scotland‘s tax authority for devolved taxes, will be responsible for the collection and management of ADT, as it has done efficiently and effectively since 1 April 2015 for Scotland‘s other currently devolved taxes, Land and Buildings Transaction Tax and Scottish Landfill Tax.
The Bill as introduced also includes powers for Scottish Ministers to set tax exemptions, tax rate amounts and tax bands through secondary legislation. I will say more on exemptions later on.
Setting tax bands and tax rate amounts in subordinate legislation is consistent with the approach adopted in relation to the other devolved taxes.
Subject to Parliamentary approval the Scottish Government hopes to pass the Bill in advance of summer recess and, with the core foundations of the tax in place, will then bring forward tax rate amounts and tax bands through secondary legislation in the autumn.
This secondary legislation will be subject to the affirmative procedure, meaning Parliament will have an opportunity to scrutinise tax band and tax rate amount proposals at a later date and they cannot come into effect without Parliament’s approval.
In future years, tax bands and tax rate amounts will be set as part of the Budget process, consistent with existing practice for other devolved taxes.
The Programme for Government also reaffirmed the Scottish Government’s long-standing commitment to delivering a 50% reduction in the overall burden of ADT by the end of this Parliamentary session, and to abolishing the tax when resources allow.
These plans are a key part of the Scottish Government’s economic strategy, in particular boosting trade, investment, influence and networks, which is especially important given the economic threat posed by Brexit. Scotland‘s airports are competing on a world stage to secure new routes and capacity. Reducing the tax burden helps ensure a more level playing field with many other European airports competing to secure the same airlines and similar routes. New routes will enhance business connectivity and tourism.
As with the other currently devolved taxes, the Scottish Government has taken, and will continue to take, a consultative and collaborative approach to engaging stakeholders on how ADT should be structured and operated.
We published a policy consultation last year which generated a range of views and since then we have worked carefully to refine our legislative proposals, reflecting on the responses received.
In addition to this, we established a stakeholder forum in August 2015, which I chair, to provide input into the development of our policy and legislative proposals for ADT. Revenue Scotland is also taking a collaborative approach to stakeholder engagement and is actively working with aircraft operators and others on matters relating to the collection and management of ADT, such as ICT and guidance.
The Scottish Government has also listened to the responses the Finance and Constitution Committee received during its consideration of the Bill at Stage 1.
I would like to thank both the Finance and Constitution Committee and the Delegated Powers and Law Reform Committee for their detailed scrutiny of the Bill, and for their conclusions and recommendations in their Stage 1 reports. The Scottish Government welcomes the Finance and Constitution Committee's support for the general principles of the Bill.
Last Friday I responded to all the issues raised and the recommendations made in the Committee’s report. I would like to highlight some of the key aspects of that response.
The Scottish Government agrees with the Committee and stakeholders that it is important that our plans for ADT are supported by robust evidence and the impacts are monitored over time.
So, firstly, the Scottish Government has therefore commenced the commissioning of an independent economic assessment of the Government’s plans for a 50% reduction in the overall ADT burden by the end of the current Parliamentary session. The assessment will report in the autumn, no later than when the Government sets out its secondary legislation plans for tax rate amounts and tax bands. In addition to this analysis, a robust monitoring and evaluation framework will be put in place for assessing the economic impact of ADT in the future.
Secondly, the Scottish Government has listened to the environmental concerns about our ADT plans, which have been raised by some respondents.
The Scottish Government is already committed to undertaking a full Strategic Environmental Assessment of our ADT reduction plans. As an example of good practice, openness and transparency the Screening and Scoping Report was made available last year for full public comment.
The next main step of the SEA process is to publicly consult on the Scottish Government’s plan for an overall 50% ADT reduction along with an accompanying Environmental Report. The Environmental Report will outline the findings of the assessment of the plan against a wide range of environmental topics such as climate factors, air quality, material assets and biodiversity.
As well as the SEA, the Scottish Government is currently undertaking quantitative assessments on the likely greenhouse gas emission and noise impacts of our overall 50% reduction plan. The noise assessment will be published in the autumn, no later than when the Government sets out its secondary legislation plans for the ADT tax rate amounts and tax bands that will apply from 1 April 2018.
The greenhouse gas emission assessment will cover the period April 2018, when ADT is introduced, to March 2021, which is when the current session of Parliament is due to end. It will be published as supporting information to the SEA consultation on the Scottish Government’s overall 50% reduction plan and the Environmental Report.
Thirdly, while there is a case for considering exemptions alongside tax bands and tax rate amounts – an exemption effectively being a zero rate - the Scottish Government has listened carefully to stakeholders, the Finance and Constitution Committee and the Delegated Powers and Law Reform Committee and will bring forward amendments at Stage 2 providing for passenger and aircraft exemptions.
I would like at this point to bring to Parliament’s attention an important policy and legal matter concerning the introduction of an ADT exemption for passengers flying from Highlands and Islands airports. A similar exemption has applied under APD since 2001, and the Scottish Government strongly supports retaining a like-for-like exemption under ADT and is interested in suggestions made during Stage 1 for enhancing the exemption.
As ADT is a new tax devolved under the Scotland Act 2016, the Scottish Parliament is legislating for the first time on this matter. After careful consideration, the Scottish Government considers that such an exemption has to be notified to and assessed by the European Commission under State Aid rules before it is implemented in compliance with European Union law.
The Scottish Government will work closely with the UK Government to resolve this matter. The UK, as the EU Member State, is responsible for notifying the exemption to the European Commission. I have also spoken to the Secretary of State for Scotland on this matter and am exploring alternative solutions. I will, of course, ensure both Parliament and stakeholders are kept regularly updated on the matter.
In conclusion, taken together the provisions in the Bill provide the basis for a tax that is well understood by taxpayers and is simple and efficient to collect and manage.
The secondary legislation powers in the Bill, subject in most circumstances to the affirmative procedure, provide sufficient legislative flexibility to make future changes to the tax in order to support key government priorities, to reflect changing market conditions or in light of Revenue Scotland’s operational experience of collecting and managing the tax.
There is general support from stakeholders and, I hope, in this Chamber to the principles of the Bill and the establishment of a tax to replace APD in Scotland. I appreciate that underneath that support there are a range of views about whether or not the tax should be reduced and indeed how that tax reduction should be applied to maximise the economic benefit for Scotland.
The Government remains of the view that our approach – whereby the overall burden of the tax is reduced by 50% by the end of this session of Parliament, and the tax is abolished when resources allow – will deliver strong economic benefits for Scotland.
I look forward to debating these and other issues this afternoon.
I invite the Parliament to approve the general principles of the Air Departure Tax (Scotland) Bill.
That the Parliament agrees to the general principles of the Air Departure Tax (Scotland) Bill.