High-level principles of Air Departure Tax

High-level principles of Air Departure Tax

The Scottish Government’s Climate Change Action: Policy Package of April 2024 contained a commitment to set out the high-level principles of Air Departure Tax (ADT). This document sets out those principles and how they will shape the future policy development of ADT as it progresses towards implementation.

Background

Following the Scottish independence referendum, the Smith Commission was convened in September 2014 and charged with reaching cross-party agreement on the devolution of further powers to the Scottish Parliament. The Agreement included a joint commitment between the UK and Scottish Governments to devolve Air Passenger Duty (APD) as part of the process to provide increased fiscal autonomy and accountability to the Scottish Parliament.

The Proposed Tax

APD currently applies across the UK on all eligible passengers leaving UK airports. ADT is Scotland's planned replacement for APD, which will be paid by airlines and levied on a per-passenger basis on flights departing from Scottish airports. The rates incurred by airlines will differ according to a passenger’s class of travel and the distance of their journey, in line with the ‘polluter pays’ principle.

Passage of Legislation and Deferral of Implementation

The Scottish Parliament passed the Air Departure Tax (Scotland) Act in 2017 with the view to introducing ADT on 1 April 2018. However, implementation of ADT was deferred due to concerns around whether the current APD exemption for flights departing from airports in the Highlands and Islands complied with European Union state aid rules.

State Aid and Subsidy Control

Following the UK’s exit from the European Union, the UK Government's subsidy control regime replaced EU state aid rules. The Scottish Government must now ensure that the granting of tax exemptions and tax reliefs complies with the principles of the Subsidy Control Act 2022.

While flights from airports in the Highlands and Islands have been tax exempt since 2001 under APD, implementation of ADT represents the establishment of a new tax alongside new tax exemptions. The creation of a new Highlands and Islands tax exemption must demonstrate compliance with subsidy control principles and consider any possible market or trade distortion. As a result, the Scottish Government has continued to defer implementation of ADT on the basis that a new exemption is necessary to protect aviation connectivity for remote and rural communities, and to ensure that devolved powers are not compromised.

We are working with the UK Government to design a new Highlands and Islands exemption which will comply with subsidy control requirements.

The Scottish Government’s Approach to Taxation

The Scottish Government’s approach to tax is guided by Adam Smith’s four canons of taxation: Certainty, Proportionality, Convenience and Efficiency. The Framework for Tax reaffirmed our commitment to these principles while adding Engagement and Effectiveness. It also emphasised the importance of fairness and progressivity as key parts of this approach.

Scotland’s Tax Strategy: Building on our Tax Principles published in 2024 sets out our medium-term ambitions for how the tax system will develop to support the delivery of the Scottish Government’s four priorities: eradicating child poverty, growing the economy, tackling the climate emergency, and ensuring high-quality and sustainable public services.

High-level principles

The Scottish Government’s high-level principles of ADT are that the tax will:

• generate stable revenues to fund public services in Scotland;
• protect Highlands and Islands aviation connectivity;
• promote Scotland’s connectivity and growth objectives; and
• support our net zero ambitions.

These principles provide the long-term foundation for industry, passengers, businesses and the Scottish Government to work together to realise the economic and wider opportunities arising from the implementation of ADT in Scotland. They also align with the Scottish Government’s priorities of providing high-quality public services, growing the economy and moving towards net zero.

Generate stable revenues to fund public services in Scotland

Implementation of ADT will see the Scottish Parliament take responsibility for a further fiscal power. The Scottish Fiscal Commission estimates that Scotland’s share of APD revenues equates to £305 million in the 2025-26 financial year, rising to £372 million by 2030-31 based upon anticipated growth rates and current UK Government APD policy. Ministers will set out the rates and bands for ADT prior to implementation, which will determine the revenues generated by the tax.

The devolution of ADT will be accompanied by a reduction to Scotland’s Block Grant to reflect that the UK Government will no longer collect APD in Scotland. The reduction, known as a Block Grant Adjustment, will be applied annually and linked to the performance of APD in the rest of the UK. The performance of ADT revenues relative to APD and policy decisions by both the Scottish and UK Governments will, therefore, determine the impact of ADT on the Scottish Budget.

Protect Highlands & Islands aviation connectivity

Protecting Highlands and Islands aviation connectivity will help deliver the Scottish Government’s priorities of growing our economy and the provision of high-quality and sustainable public services.

The Scottish Government’s Islands Connectivity Plan recognises that aviation offers rapid and more reliable connectivity to the rest of Scotland, the UK and the rest of the world than alternative modes of transport for individuals and businesses in the Highlands and Islands. These services bring economic and societal benefits, as well as providing crucial services such as healthcare links; particularly where complex treatment is not available locally. Air services offer a lower-cost alternative for those choosing to travel without a car and in some circumstances can also be more environmentally friendly than travelling by ferry or car.

Promote Scotland’s connectivity and growth objectives

Promoting and growing Scotland’s connectivity will help deliver the Scottish Government’s priority of growing our economy.

As set out in the Scottish Government’s Aviation Statement, air services are essential for securing our place in the world by providing international and domestic connectivity. Strong international connections enable a flow of trade, investment, airfreight, labour and visitors to Scotland, all of which benefit the Scottish economy.

Support a reduction in emissions from the aviation sector

ADT will provide an opportunity to consider how tax policy can support a reduction in emissions from the aviation sector to help to deliver the Scottish Government’s priority of tackling the climate emergency.

Passengers flying to the furthest destinations – and so producing the most emissions – would incur the highest tax liability for airlines, while it is expected that passengers on flights fuelled by less polluting, non-kerosene aviation fuels (e.g. hydrogen aircraft) will continue to be tax exempt.

An increased rate of APD for private jets was announced by the UK Government in the 2024 Autumn Budget. The Scottish Government will monitor the effectiveness of this measure, along with the outcome of the UK Government’s consultation on bringing all private jets into the higher rate of APD.

Next steps

The Scottish Government is committed to working with stakeholders from all sectors and parts of society to ensure a broad variety of input is invited. With this in mind, we will undertake a process of stakeholder engagement to ensure those views are recognised and that the ADT principles are comprehensive and effective.