Scottish Government commissioned Stantec to analyse the impact of reducing the level of tax paid by Scotland’s air passengers
In 2016, the Scottish Government gained powers over the taxes paid by air passengers on departure from Scotland’s airports. Scottish Ministers were considering reducing the tax with a view to encouraging new routes to be operated from Scotland.
To look into this, our team was appointed to undertake independent research to estimate the impacts of reducing the level the tax (which varied by short/long haul and standard/higher rate). It needed to consider both the potential for lower taxes being passed on to customers in the form of reduced fares, and the also the potential supply side response in the form of operating existing routes at a higher intensity or commencing new routes—all based on three different tax rate scenarios. A spreadsheet-based model using highly granular Civil Aviation Authority datasets together with Department for Transport price elasticities of demand was used to forecast the change in passenger numbers by type, which was then used to generate estimates of the economic impact using measures of employment and gross value added (GVA). A range of scenarios were developed with an estimate of GVA and tax revenue foregone in each.
The study provided key evidence for Ministers to inform their decisions around the tax which remains an ongoing process.
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