Should Wales be allowed to set Air Passenger Duty rates for flights from Welsh airports?
In our new report, we set out arguments for and against the devolution of air passenger duty to Wales
What is Air Passenger Duty (APD)?
Air Passenger Duty (APD) is a tax levied by the Government on passenger flights from UK airports, which came into effect in 1994.
APD is charged on a per-passenger basis from UK airports to domestic and international destinations and is payable by the operator of the flight.
The rate of the duty varies according to passenger destination and class of travel and is usually passed onto the passenger in their ticket price.
Who manages APD in the UK?
It is currently set and managed by the UK Government for England and Wales, but is being devolved to Scotland and has been partially devolved to Northern Ireland.
In September 2016 the UK Government confirmed that following consideration, it did not intend to devolve APD to Wales, despite calls from the Welsh Government for it to do so.
Our report weighs up the arguments for and against devolution of Air Passenger Duty, and draws on evidence taken from tax experts, airlines, airports, the Chairs of the Silk and Holtham Commissions and UK and Welsh government ministers.
Arguments for devolving Air Passenger Duty to Wales
These were the main arguments for devolving APD presented to us
- Recommendations made by two respected commissions, the Silk Commission and the Holtham Commission, suggested that APD should be devolved to Wales.
- APD is being devolved to Scotland and has been partially devolved to Northern Ireland, making Wales the only devolved administration with no power over any aspect of APD.
- The devolution of APD, and subsequent reduction or abolition of the duty, could unlock the potential of Cardiff Airport to attract new airlines and increase passenger numbers to Wales.
- Cardiff Airport could potentially complement busier airports in England, some of which have plans for expansion because they are nearly at capacity.
- A reduction in APD could boost the Welsh brand and promote economic growth across the whole of Wales.
Arguments against devolving Air Passenger Duty to Wales
This was the evidence we heard against devolving APD
- Devolution of APD could take business away from English airports serving Wales.
- Those living in South Wales could see more benefits than those living in Mid and North Wales as it is Cardiff Airport that will be primarily affected.
- Cardiff Airport already has a competitive advantage because it is under the ownership of the Welsh Government.
- The aviation industry is relatively under-taxed as airline fuel is not subject to tax and airline tickets are not subject to VAT, domestically or internationally.
- If APD were devolved to Wales, and subsequently abolished or reduced, there would be an increase in air traffic which in turn could increase carbon emissions and cause damage to the environment.
- Wales would see a reduction in the amount of funding it receives from the UK Government through the block grant.
Our conclusions
After carefully considering all these arguments, we have come to the view that APD should be devolved to Wales and we call on the UK Government to set out plans to so by 2021.
However, we note the environmental concerns about reductions in APD, which could incentivise increased air travel.
Therefore, we call on the Welsh Government to carefully consider the environmental implications of any reduction or abolition of APD.
What happens next?
We have made these recommendations to the Government
The Government has two months to respond to our report. To read more depth and detail about our recommendations, read our report on Devolution of Air Passenger Duty to Wales, or see more on our website.
If you're interested in the work of our committee, find out more about our other inquiries.
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