North East business and airport leaders concerned region to be made guinea pig for tax reforms

Chancellor George Osborne told MPs that allowing Scotland to vary air passenger duty could cost Newcastle 450,000 passengers

Chancellor George Osborne has warned that Newcastle International Airport could lose 450,000 passengers if the region is made a guinea pig for air tax reform.

Speaking to the Treasury Select Committee Mr Osborne admitted HMRC predicts a lowering of air passenger duty in Scotland – which the SNP has promised once it gets increased “devo max” powers” – would see Newcastle lose 10% of its traffic.

But he said he personally believed such “tax competition” should be allowed as “its one of the principles of devolution” – a move that airport chiefs say could put 1,000 jobs at risk and cost the region’s economy £400m in the next 10 years.

“You can conceive of a situation where a big fall in APD in Scotland does have a major impact on passenger numbers, particularly in the North East,” said Mr Osborne, whose own constituency contains part of Manchester Airport.

“We’ll have to look at what we can do to support regional northern airports to see that they not suffer a loss.

“But that is the responsibility of government here, and now something we should expect the people of Scotland to pay for.”

Newcastle International Airport currently employs around 3,200 people at it’s Woolsington base, with a further 4,100 people employed in related roles within the North East. By 2030 it hopes to have increased the combined total by more than a third, to 10,000 staff.

It also has been estimated that the airport contributes around £646m a year to the North East economy, with that figure more than doubling to £1.3bn in 15 years time.

But any reduction in passenger numbers could put growth and jobs under threat.

In November, following the Scottish “no” to independence, the Conservatives, Labour and Lib Dems all agreed that control of APD for flights from airports including Edinburgh and Glasgow should be handed to Holyrood as part of a “devo max” settlement.

In the short term the SNP has set out plans to halve the rate of APD – and eventually abolish it altogether.

Yet perhaps most worrying for the North East’s prospects were the comments of Permanent Secretary to the Treasury Nicholas Macpherson, who said he sees the potentially harmful disparity in air taxes as a form of economic experiment.

“If Scotland were to cut APD hugely they will bear quite a big cost in the short run and will have to make good that cost, either through higher taxes elsewhere or through lower spending. So, I see this actually potentially as a bit of a laboratory where we can actually learn more about the effectiveness of tax and spending,” he said.

Newcastle International chief executive Dave Laws said he was concerned.

“We’ve been working very closely with the Treasury on this matter and welcome the fact that the issue has been recognised as important,” he said.

“Having said that we are concerned about the reference to this being potentially ‘a bit of a laboratory’ as we would point to examples elsewhere, such as in The Netherlands, and particularly in Ireland and Northern Ireland, between Belfast and Dublin, where differing levels of air taxes have been proven to have an impact.

“Why now do we need a ‘laboratory’ here?”