Not a coherent policy

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For an independentista like myself, the question of devolving Air Passenger Duty (APD) is a complete no-brainer: of course, it (along with all other taxes) should be the responsibility of the Senedd rather than Westminster.  Supporting the criticism of foot-dragging by the UK Government which was made last week by the Welsh Finance Minister is easy enough.  Supporting the apparent policy of reducing the tax is, however, an entirely different question.

Clearly, the Welsh Government sees a reduction in the tax as being of economic benefit to Wales and a means of incentivising greater use of Cardiff airport.  Leaving aside the implicit assumption that ‘Wales’ is equivalent only to the southern part of the country (people living in the middle and north of Wales are likely to continue to find Liverpool, Manchester and Birmingham more convenient and attractive even if Cardiff does offer a small tax advantage), the issue is whether deliberately encouraging an increase in the number of flights taken is in line with the same government’s commitment to carbon reduction.  It clearly is not; increasing the volume of the most carbon-intensive form of transport is not compatible with a commitment to de-carbonising the economy.

The original purpose of APD wasn’t raising revenue at all, it was an early attempt at a ‘green’ tax on an environmentally costly mode of travel.  In practice, it’s a blunt and clumsy instrument which takes no account of the relative efficiency of different engines and aircraft and has had little effect on the continuing growth in air travel.  It’s a half-hearted attempt to address the anomaly under which no fuel duty is paid on aviation fuel (unlike other fuels), but imposing such a tax unilaterally would lead to even more environmentally damaging practices such as an increase in ‘tankering’ (where aircraft fuel tanks are filled with more fuel than required in low duty airports in order to avoid refuelling in high duty airports, and end up using more fuel in total to carry the extra weight).  Aviation taxation unquestionably needs to be reconsidered, but it’s hard to see what the Welsh Government acting alone could effectively do beyond a bit of tinkering at the edges – what’s needed is collective international action.

Merely reducing or abolishing the tax – which is what seems to be Welsh Government policy (aided and abetted apparently by opposition parties) – is encouraging a race to the bottom, in which airports in different tax jurisdictions compete to see who can do most to encourage carbon-intensive activity in pursuit of immediate economic benefit.  Joined-up thinking it is not.

Tax competition and racing to the bottom

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There was a letter from the First Minister in the Western Mail on Saturday, talking about how devolving Air Passenger Duty would make a huge difference.  That part was nonsense, of course.  Devolving APD in itself makes no difference whatsoever; what might make a difference is changing the level of taxation.  Devolving the power might or might not lead to change in tax rates – that actually depends on taxation policy rather than directly on where that policy is decided.

But there was one line in the letter which particularly drew my attention, and that was where the First Minister said, with clear approval of the principle, “The UK government has already accepted the case that it is appropriate for there to be some tax competition following the devolution of tax powers.” 

Perhaps one should never expect consistency from politicians, but I seem to remember that that wasn’t always his position.  Let’s consider his views on the devolution of Corporation Tax, when he said “When it comes to corporation tax I am sceptical on this and if we have it devolved to Northern Ireland, Scotland, England and Wales, I think there is a genuine risk of a race to the bottom with everyone reducing corporation tax; that would be great for business, but hopeless for the public purse.”

So, devolution of taxes that he wants to cut would lead to healthy tax competition; devolution of taxes that he doesn’t want to cut would lead to a race to the bottom.  There is nothing wrong with taking a political view as to which taxes should be cut, held the same, or increased – that’s an entirely legitimate way of enabling people to compare and contrast political parties and programmes.  It is not, however, a sound or principled basis for deciding where taxation powers should reside. 

‘Tax competition’ and ‘race to the bottom’ are just two different ways of describing the same thing.

Tax cuts aren't the same as devolution

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Not for the first time, bosses at Cardiff Airport have called for the devolution of air passenger duty.  Now, as a question of principle, I’m not going to disagree.  Since my starting point is that all taxes should be levied by the Assembly, not by Westminster, and that as long as the UK exists, financial transfers should be from devolved administrations to the centre rather than the other way around, I’m never going to disagree with the devolution of any taxation powers.

But I’m not sure that devolution of the tax is really what Roger Lewis is calling for here.  What he’s calling for is a cut in the tax; devolution is merely the perceived means to an end.  He clearly believes that the Welsh Government would be more likely to cut the tax than the UK Government.  He may well be right on that – but putting specific taxes in the hands of whichever administration is most likely to set the rate to the advantage of the organisation you represent isn’t the same as supporting devolution, let alone a particularly rational way of sharing powers across the UK, or of planning the public finances.

Personally, I’m not at all sure that cutting air passenger duty is the right thing to do.  It is clearly intended to boost traffic and passenger numbers at Cardiff airport – but is encouraging more flying really what we want to do?  For those running an airport, it might well be, but I’m not at all sure that it’s a good fit with the environmental policies being put forward by the government.