Air travel tax powers would be an economic boon for Wales but Westminster won’t give them up lightly

Touchdown at Cardiff Airport. Picture by Clint Budd (CC BY 2.0)

Rhydian Jones

In autumn 2016 low-cost airline Flybe launched its first ever Cardiff to London City service.

As the Severn Tunnel, which connects Monmouthshire in Wales to South Gloucestershire in England, was closed for electrification, Flybe advertised a faster, cheaper, and shorter route to the City in an attempt to mop up a share of visitors and commuters now in need of an alternative link between the two capitals.

What Flybe did not quite anticipate was just how much of this share it would eventually receive. What was planned to be a six-week rail replacement service was extended indefinitely even after competition from rail returned to the market.

But almost a year later, the company announced that it would end its service between the two capitals, citing the high rate of Air Passenger Duty (a UK tax on air travel) on domestic flights, which made the service unviable.

Flybe left the door open to reintroducing the service, stating that if APD were to be devolved to the Welsh Government, and then reduced, it would consider reversing its decision.

The decision was not illogical. Britain has the highest aviation tax levied on passengers departing from EU airports anywhere in the world.

Such is the disadvantage placed on UK airports compared to neighbouring rivals that in June the Conservative Party considered scrapping APD in Northern Ireland to compete with airports in the Republic of Ireland.

Like Northern Ireland, opportunities for Wales which arise from reducing APD are enticing.

The Welsh Government acquired Cardiff Airport in 2013 following near-bankruptcy, and since then passenger numbers have increased year on year, becoming the fastest growing airport in the Britain by 2016.

Earlier this year Qatar Airways chose Cardiff as its Wales-and-South-West-England hub. Soon after, Cardiff won ‘Best Small Airport’ in the UK.

This raises the question: if the Welsh Government could achieve this simply by improving the service, what could it achieve with powers to incentivise demand as well?

This logic extends to airports beyond the capital. Anglesey Airport almost lost its Cardiff service earlier this year, and Aberporth is being cited as a future domestic airport for the west. Both, however, could use a tax break to encourage growth.

One of the Welsh Government’s target sectors for growth in recent years has been tourism, but UK APD is three times that of neighbouring France, which leads the world in terms of its annual visitor numbers.

With APD also lower in the Republic of Ireland (and soon in Scotland and Northern Ireland), could Wales be missing a trick by gifting its rivals a competitive advantage?

No incentive

With so much potential for growth in what is the UK’s poorest country per head, the question of Westminster’s motive for centralisation is disputed.

While geography dictates that the runways of Scotland and Northern Ireland pose little competitive threat to those located in England regardless of whether or not they offer lower rates of APD, Cardiff sits within the catchment area of some of England’s largest airports.

Fewer than sixty miles separate the Cardiff and Bristol airports; and only sixty more stand between Cardiff and the airports of Birmingham and Exeter.

In 2016 a Labour MP for Bristol South lobbied the Government against devolving the tax for fear of it making Cardiff “significantly cheaper” to fly from than Bristol.

As a cost-benefit electoral decision, it is worth remembering that there are only forty parliamentary seats up for grabs in the whole of Wales. In contrast, there are fifty-five in the Bristol Airport catchment area alone.

There is little incentive, therefore, for the UK government to squeeze Cardiff’s rivals further by giving the Welsh Assembly a free rein on APD.

Devolution of APD to the Scottish Parliament was deemed a necessary sacrifice by the Smith Commission in the wake of the 2014 Independence Referendum.

It is also no coincidence that the Conservative Party only agreed to consider lowering APD in Northern Ireland once they became reliant upon the DUP for a parliamentary majority.

Unfortunately for Wales, it holds no such bargaining power. In the Westminster zero-sum game, the pay-offs from devolving the tax would be negligible.

Conservatives

If the lesson, therefore, is that power is decentralised as much as necessary, but as little as possible, the first step to devolving APD will mean making it a necessary trade-off for Theresa May’s government, by moving retention of APD outside of her party’s win-set.

If APD is to be realistically devolved to the Senedd, politicians and parties in both the Senedd and Whitehall need to be more vocal and united in their conviction that it is something that the National Assembly actually wants.

As the American essayist Ralph Waldo Emerson wrote, “Nothing great was ever achieved without enthusiasm”.

As it is the governing Conservative Party specifically whose nod of approval will be needed for this to happen (at least for the time being), any campaign for APD powers must include the Conservative group in the Welsh Assembly.

This does not just mean supporting APD devolution on paper. They already do, and have done for some time.

It means being louder and more willing to stand alongside Labour and Plaid Cymru to frame the issue as non-partisan.

It may even mean using their votes to deny Mrs May of a majority if required.

The parliamentary arithmetic means there has never been a better time for the Welsh Conservatives to be the unlikely heroes who deliver APD to the Senedd.

But sooner or later the window of opportunity will close, and keeping a hold of APD will move into Westminster’s win-set once more.

Flybe’s intention to scrap its Cardiff to London service and make devolution of APD a condition for changing its mind may well be a dangling-carrot lobbying tactic.

But regardless of corporate game theory, for the Welsh capital and the wider region, the impact of losing a high-speed link with the financial capital of the world remains the same.

For now, devolution of APD is stuck on the tarmac, but playing the Westminster game could give it clearance for take-off.

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9 Comments

  1. Red Dragon Jim

    I welcome this article.

    It is worth being aware that long-haul APD was devolved to the Six Counties in 2012/2013, way before the DUP deal existed.

    Theresa May doesn’t care about APD, but Alun Cairns needs to hear this message loud and clear. The international airport is in his own constituency.

  2. Is this what devolution is for then? So that we can take our place in the neo-liberal race to the bottom, piling more and more subsidies and corporate welfare onto the already-privileged in the hope of a few crumbs from the table of globalisation?

  3. Robert Williams

    If the rate of APD makes an air service between Cardiff & London ‘unviable’, APD is doing its job. There should not be air services over such absurdly short distances – unless we’re in a hurry to render the whole planet unviable even sooner.

  4. The environ-mentalists will be up in arms at this for sure, which I think highlights a problem in overplaying environmental issues in Wales.

    Most developing countries are given dispensations and different terms when it comes to their environmental policies. We are in the bracket of a developing country and a very small one at that. Even if we do our very worst we will never have the potential to destroy the planet. It could be argued that we should set the standard and occupy the high ground in order to shame the real problem nations to conform, everyone should do their bit so to speak.

    In reality no-one will pay a blind bit of notice to us, unless we are politically, economically and commercially significantly more developed than we are now. Let’s get our economy and the rest ticking along first and the rest will take care of itself – we don’t need unnecessary environmental handcuffs just to feel better about ourselves and show everyone who isn’t watching or listening how great we are – take the tax off and have those short flights to London and elsewhere if that’s what we need to get our economy moving..

  5. Good summary of the APD “problem” as it currently exists. Getting the Tory A.M’s to put their full weight behind this idea is helpful ( and inclusive!) but any move to reduce the APD will agitate the environment/green brigade who want APD to increase, if anything. Pragmatism, as touched upon in another recent article, should dictate that any cut in tax which widens the scope of this airport to connect with even more destinations will be seen by the majority of ordinary folk as a “good thing”.

    On the matter of certain types of journeys being “absurd” on account of short distance – let the paying public decide. What is absurd is that there was a price competition issue involved. No way should train fares be so ridiculously expensive as to provide such an easy target for an airline to take potshots at them. If the TOC’s involved can’t sell the benefit of travelling from South Wales to say London by rail then maybe we should rethink how that service is run and not get into sniping at some of the minor airlines for daring to compete.

    • Diolch. Agree with your point on rail. For those who oppose lowering APD on environmental grounds I’d reply to them by saying if APD were lower and the market more competitive then

      1. The electrification of the line to Swansea might actually have actually gone ahead, and
      2. Train prices would inevitably decrease leading to significantly more people choosing rail over car.

  6. I’ve always said, and I continue to say, that if Westminster won’t devolve APD, then the Welsh govt should abolish car parking charges at the airport. The costs are similar and if we are looking at ways to increase users of the airport, then this is one which falls under the Welsh govts control. They don’t actually want to investigate that option though because to do so would contradict the vote made by Labour MPs and would open yet another can of worms within a party that is already struggling badly with its infignting.

    Surprised that Plaid Cymru haven’t mooted it as a consideration though

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