HOPES that control over Air Passenger Duty (APD) would be devolved to Holyrood were dashed in a Budget that received a lukewarm response from Scotland's aviation sector.
While the Chancellor has levelled out the rate of APD on all long-haul flights so that UK passengers flying to far-flung destinations such as Australia or Hong Kong from April 1 2015 will pay the same rate as they would flying to North America, the change is expected to deliver limited benefit north of the Border.
Gordon Dewar, chief executive of Edinburgh Airport, Scotland's busiest hub, said: "Although a small step in the right direction, this announcement will only impact a small, but growing, number of our passengers. It will not have any fundamental impact on European passengers, who are our biggest market.
Loading article content
"We have said on numerous occasions that we will support any plan to reduce or abolish Air Passenger Duty. I am hopeful that this decision will bring the APD debate to the forefront and reaffirm our commitment to offering our passengers the best for their money."
APD is currently divided into four bands. These include the short-haul band A for flights of up to 2000 miles - typically to destinations within Europe or North Africa - and band B for mid-range flights of up to 4000 miles, which covers the United States. At present, a levy of £67 is added to cost of all aeroplane tickets on flights departing from the UK to North America, rising to £134 for passengers seated in non-economy cabins.
However, the rate for passengers flying further afield on services rated band C or D - up to or more than 6000 miles respectively - currently comes in at an additional £83 or £94 per ticket, or up to £188 in business and first class.
The shake-up will see both of the higher rates abolished and all non-short-haul flights classed under the B banding. At current levels, a family of four will save £112 on flights to Sydney, Australia and £64 on flights to Cancun, Mexico.
The move comes after years of successive increases in APD that have seen the duty balloon since it was first introduced in 1994 at £5 on European routes and £20 for flights outwith the continent.
Reports last week suggested the Scotland Office was pushing the Treasury to devolve control of APD to Scotland in a bid to defuse the case for independence. The SNP has pledged to halve and eventually axe the tax in an independent Scotland in a move it believes would boost the tourism economy and eliminate a major obstacle blocking airlines from investing in new routes out of Scottish airports.
However, the Treasury was always unlikely to hand power over the tax to Edinburgh, with Scottish flights generating £234 million of a total APD revenue of £2.8 billion in 2012/13.
The compromise of scrapping bands C and D is expected to have a limited benefit to Scottish airports, which operate few services to destinations that would have been classed as C or D. The policy is geared to passenger flying to emerging markets in China, India, and Brazil, or Brits visiting relatives in South Asia and the Caribbean.
A spokesman for Glasgow Airport said: "Any moves to address APD, which simply serves to artificially depress demand and dissuade airlines from flying to and from Scotland, should be welcomed."
He said the Chancellor's announcement amounted to recognition that APD was a barrier to growth, but added: "It falls short of providing any material benefit to Glasgow Airport, as the vast majority of our passengers fall into bands A and B, which will be retained."
Liz Cameron, chief executive of the Scottish Chambers of Commerce, said: "It is good news that the government has at last recognised the impact that the highest taxes on air travel in the world are having on Scottish businesses' ability to trade and attract investment, and we welcome the decision to reduce APD in the highest bands to a lower level. However, even this move will still leave the UK with the highest such taxes in Europe, and more needs to be done to tackle the burden of these taxes, particularly on Scotland's airports."
Besides APD reform, the Budget also announced plans to extend the scope of the existing Regional Air Connectivity Fund to include start-up aid for new routes from regional airports.
The fund is expected to help smaller airports, such as Inverness, which are unlikely to benefit from England's HS2 high-speed rail link.
However, Dale Keller, chief executive of the Board of Airline Representatives UK, said the industry would "need to evaluate any potential competitive distortion" that could be caused by quasi-state subsidies.