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Scottish air passenger duty changes hit snag Scottish air passenger duty changes hit snag
(about 4 hours later)
Plans to replace air passenger duty with a discounted alternative may have to be delayed. Plans to replace air passenger duty with a discounted alternative have been disrupted by legal issues.
The Scottish government wants to replace Air Passenger Duty (APD) with a new devolved Air Departure Tax (ADT) in Scotland from April next year.The Scottish government wants to replace Air Passenger Duty (APD) with a new devolved Air Departure Tax (ADT) in Scotland from April next year.
However, it said plans to continue exempting journeys from airports in the Highlands and Islands required EU approval under state aid rules.However, it said plans to continue exempting journeys from airports in the Highlands and Islands required EU approval under state aid rules.
It is understood that getting this approval could take longer than Brexit.It is understood that getting this approval could take longer than Brexit.
Finance Secretary Derek Mackay is expected to set out the position in a Holyrood statement later. The Scottish government is still working on options to avoid a delay. Finance Secretary Derek Mackay told MSPs that the "mess" was the UK government's fault, saying it could cost the Scottish government £320m to maintain the exemption in the meantime.
However, the Treasury insisted that it was the responsibility of the Scottish government to ensure any new tax was compliant with state aid rules.
And opposition parties voiced suspicion that Mr Mackay was preparing to back down from plans to cut the new tax, something he denied.
The Scottish Parliament was given powers to charge tax on passengers leaving Scottish airports under the Scotland Act, which came into force last year. MSPs signed off the creation of the new tax by 108 votes to 11 in June.The Scottish Parliament was given powers to charge tax on passengers leaving Scottish airports under the Scotland Act, which came into force last year. MSPs signed off the creation of the new tax by 108 votes to 11 in June.
The Scottish government wants to cut the new tax by 50%, before eventually scrapping it completely. It argues the move will boost the economy by increasing the number of flights to and from the country.The Scottish government wants to cut the new tax by 50%, before eventually scrapping it completely. It argues the move will boost the economy by increasing the number of flights to and from the country.
However, even before MSPs debate rates, exemptions for the Highlands and Islands are proving an issue for the new tax.However, even before MSPs debate rates, exemptions for the Highlands and Islands are proving an issue for the new tax.
Mr Mackay told MSPs during an early debate of the new tax that there was an "important policy and legal matter" with the exemptions, which he said the government "strongly supports retaining". Mr Mackay told MSPs that ministers had concluded after careful consideration that the Highlands and Islands exemption would need to be notified for approval from the European Commission. However the onus is on the UK, as the EU member state, to submit this.
He said: "The Scottish government's view is 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. He said the "obligation was on the UK government" to make sure the devolved tax would work, saying "they got us into this mess".
"The Scottish government will work closely with the UK government to resolve that matter. As the EU member state, the UK is responsible for notifying the exemption to the European Commission." The finance secretary said he had suggested that Holyrood's block grant from Westminster be amended to plug the gap, "in a way that ensures neither the Highlands and Islands or Scotland's public finances suffer as a result of this apparent defect in air passenger duty".
Talks have been held with the Treasury and Scottish Secretary David Mundell, and ministers are "exploring alternative solutions" in the meantime. 'Successful devolution'
Budget deal Mr Mackay added: "I cannot see ADT put into operation with this significant uncertainty hanging over the Highlands and Islands.
Ministers are now faced with either a lengthy legal wrangle to bring in ADT or a delay to its introduction and, in the meantime, retain the current system with the UK government. "I therefore urge the UK government to step up to the plate, to recognise their responsibilities and to support our proposal which would enable ADT to go forward as planned without causing harm to the Highlands and Islands economies."
The latter option would make it easier for the Scottish government to get a budget deal with the Greens who oppose cuts to aviation taxes. The Treasury, which has suggested delaying the transfer of the tax, said it was committed to devolving APD.
The Greens have warned that the party's six MSPs will not deal with ministers when it comes to budget talks next year unless there is rethink on plans to cut the current charges. A spokeswoman said: "It is the responsibility of the Scottish government to ensure any new tax they design is compliant with state aid rules.
They are concerned about the environmental impact of more flights, and claim the cut would mainly benefit wealthy travellers and big business. "We are committed to the successful devolution of air passenger duty, and UK government officials will continue to work with their Scottish government counterparts as they seek to develop a solution."
Ahead of the ministerial statement, Labour repeated its calls for the Scottish government to scrap its plan to cut ADT once it is eventually introduced. Opposition parties suggested Mr Mackay may have ulterior motives, given that the Scottish Greens have ruled out doing any budget deal with the SNP which includes the APD cut.
MSP Neil Bibby said: "Cutting the Air Departure Tax will not make Scotland fairer or greener - all it will mean is less funding for hard pressed public services while the richest few get yet another bonus." Scottish Conservative finance spokesman Murdo Fraser said Mr Mackay was "weaselling out of its commitment" to the tax cut so they could "pally up with the Greens" to get his budget passed.
However Conservative finance spokesman Murdo Fraser urged the SNP to stick to their guns, saying "there must be no backtracking on this commitment to our vital tourist industry". Labour's Neil Bibby also suspected that the legal trouble with the tax was "a convenient opportunity to kick a bad policy into the long grass".
Green co-convener Patrick Harvie said Mr Mackay's "legal quagmire" with the tax was a handy "technical pretext to spare his blushes".
In response to these questions, the finance secretary insisted that the Scottish government "stands by" its position on cutting air tax, repeatedly insisting that "it's for the UK government to resolve any lack of compliance".
He said it was an issue of "successful and competent delivery of devolution", saying the idea of devolution costing the Scottish government money was a clear breach of the "no detriment" clause in the Smith Commission agreement and the fiscal framework.
Lib Dem leader Willie Rennie also thought Mr Mackay was looking for "political cover", but voiced fears that he could be "recklessly risking the future of the discount" with the involvement of the European Commission.
Mr Mackay insisted he had been entirely transparent about the issue, and said that while "of course there is risk" over the EU's response, the UK government wanted the risk to lie with the Scottish government and the people of the Highlands and Islands.