UK air transport policy post-Scotland vote; 'devolution' could reshape previous aviation plans
UK aviation policy may well be substantially changed in the wake of the 18-Sep-2014 vote on the independence of Scotland, even though Scotland remains part of the UK. In this report we speculate on some of the possible aviation outcomes.
Roughly 55% of the electorate voted against independence versus 45% for, although four of 32 areas did vote in favour, including the biggest city, Glasgow. But that decision has hardly settled the matter; indeed the process of electioneering has opened up a Pandora’s Box of issues that possibly threaten the 307 year old Union even more than Scottish independence alone would have done. As ever, aviation will be dragged into the melee.
One thing now apparent is that there are no longer any certainties and that the Airports Commission especially needs to be aware, at a critical moment in its deliberations, of the many new forces at play - and the potential new scenarios.
The Scottish electorate (which included anyone aged over 16) on an 84.6% turnout, the highest ever recorded in recent times, voted decisively if not overwhelmingly to retain the country’s ties with the United Kingdom and to eschew independence from it. In doing so the voters spared the political landscape of the British Isles from being disrupted for the next 18 months by rows over currencies, Scottish pensions and the location of nuclear submarine bases, not to mention the complex financial cost of separating the nations.
In the lead up to the vote, there were many ill-defined offers made by both the government and the opposition partiers in order to persuade voters to reject devolution. These mostly involved watering down Westminster's central role in the Union.
EU Trade Commissioner Karel de Grucht may believe there will be no ‘snowball effect’ as in the break-up of the Soviet Union but he underestimates the strength of feeling on the need for detachment from ‘Westminster’ that is increasingly felt across the entire UK. In the week of the vote the Welsh First Minister dramatically but more than a little excessively described the United Kingdom as “dead.”
Aviation, of course is not immune from these centrifugal ramifications, in the UK, Europe and further afield. In order to understand how aviation may or may not be affected by the Scottish No vote and subsequent events there and elsewhere in the Union, it is necessary firstly to see the overall political picture.
This report will then examine some of the specific aviation issues that may be influenced - even if the more extreme outcomes do not occur.
As support grew for devolution grew, several influences were important
There were three main factors influencing the vote in the final days when the Yes campaign had crept ahead in some polls:
- A panic reaction by the leaders of the three main political parties, the Conservatives and Liberal Democrats - who form the UK Coalition government until May-2015 when a general election will be held - and the Labour Party. (The other significant party, UKIP, did not get a look in). All three hastily offered a ‘vow’, which was widely published by the media.
They offered a new version of ‘Devo Max’, a second tier alternative to independence that would give greater powers to the Scottish Executive to raise its own taxes, while retaining ‘the Barnett formula’, a decades old calculation devised by a previous Chief Secretary to the Treasury, Joel Barnett, and which allocates government funding of the Scottish economy by 20% more than the English one so that the Scots receive about GBP1,600 more in support per head than do people in England.
UK Prime Minister Cameron had hitherto declined to include ‘Devo Max’ as an alternative on the ballot paper to the simple question ‘Should Scotland be an independent country?,’ clearly having believed that he would win a straight one-way-or-the-other decision easily;
- The intervention of a former Prime Minister who had all but disappeared from mainstream politics, namely the Scottish MP Gordon Brown, in the final week on the side of the ‘No’ camp, the flaccidly named ‘Better Together’.
Brown used his oratorical skills to good effect. Prior to his intervention the un-coordinated 'No' campaign had been a damp squib;
- The fact that there were so many undecided voters, up to 0.5 million, right up until the last minute. Indecisive people tend not to vote for change when push comes to shove.
Some may have indicated a preference for a Yes vote to pollsters out of fear of intimidation from what was latterly a frenetic Yes campaign. Meanwhile another 0.7 million postal voters had made their choice several weeks before 18-Sep, when the No campaign was 22% ahead in the opinion polls.
Devolution for the English (and the Welsh) has now become the new mantra
While 55:45 is a fairly emphatic margin, there is still a hefty proportion of the population that feels dissatisfied and in many cases aggrieved. Apart from the Scottish National Party ‘s (SNP) Leader Alex Salmond’s belated and bizarre claim that Scotland could declare independence without a referendum, the first threat to the relative calm in the coming weeks will be if Scots perceive that Prime Minister Cameron is reneging on his ‘vow’ to devolve more powers, and quickly.
But in order to satisfy his own party (the Conservatives) he may have to do just that as its MPs want the same powers and benefits for England in policy areas like tax and welfare, as do the English themslves. And just now the Conservatives are lagging Labour in the polls, with just seven months left before the election. Devolution for the English (and the Welsh) is the new mantra. The Conservatives are essentially a southern English party with almost no representation in Scotland.
Many of Its MPs are now fixated on eliminating the aforementioned Barnett formula and ensuring that England is equal in other ways, for example free medical prescriptions and free university tuition, as are available in Scotland.
These are not insignificant matters. The great majority of the English electorate is aggrieved by a sense of political inequality; to the same degree as the Scots were.
The Labour Party is caught between the idiomatic Rock and a Hard Place. While it is keen to re-establish its credentials as the standard bearer for working class England (essentially if not wholly in the North and Midlands) before the May-2015 general election, it cannot win an election without its 41 Scottish MPs.
Mr Cameron’s response to the No vote in Scotland and the immediate pressure he came under from his own MPs was to offer a complete review of the way the UK is governed, with an initial report before the end of the year and, if possible, legislation within what is left of this Parliament; an almost incredibly tight timetable.
But that review will inevitably include a recommendation that the so-called ‘West Lothian question’ be solved. The West Lothian question refers to whether Members of Parliament from Northern Ireland, Scotland and Wales should be able to vote on matters that affect only England in the House of Commons. The term was coined in 1977 when Tam Dalyell, a vociferous Labour MP for the Scottish constituency of West Lothian, raised the matter in a House of Commons debate on Scottish and Welsh devolution.
Labour could remain in opposition forever without its Scottish MPs
To cut a long story short, if the power of Scottish MPs to vote on English matters is removed, then Labour will become virtually unelectable in England. Already, what was seen as a surprising degree of very short-notice co-operation between the parties to assuage the Scots is being perceived by many in the Labour Party as the beginnings of a Coalition plot to ensure that Labour stays in opposition in perpetuity by removing a power base.
Air transport leaders would be alarmed by such an eventuality for Labour was more supportive of the sector during its last spell in power than the current Coalition has been.
As if these complex considerations were not enough to be going on with there are further complications.
Regional independence has become an important force, with implications for transport policy
For example, the Scottish vote has not only stirred up a hornet’s nest of support for English independence in general, it has done the same for some of the English regions. The Tyneside area (anchored on the city of Newcastle), the Yorkshire & Humber region and Cornwall in the far southwest are in the vanguard of embryonic but established self-government movements.
Of greater significance to transport affairs however is the fast-growing determination in government, even amongst people such as London Mayor Boris Johnson, that the main non-London city-regions in England (eight in all, accounting for 33% of the population) should gain much more autonomy over their affairs, as London has done.
For the last 10 years, and under different governments, the Greater Manchester region has been at the forefront of this trend, gaining more control over, for example, transport policy, which has enabled it to acquire the most comprehensive surface transport portfolio outside the capital. In doing so it has been able to emulate, albeit to a lesser degree, the transformation of the London transport system that has been achieved by Transport for London (TfL) in the last 15 years since it was handed greater powers, which includes the Heathrow Express, Docklands Light Rail extension and Crossrail, which will connect the eastern and western sides of the capital via Heathrow and which may be extended into the northern Home Counties.
As this report was written, Manchester had announced a consultation on joint housing and employment schemes that would, again, transfer critical power structures to it away from Westminster.
Now other city-regions such as Liverpool and Leeds in the north and Birmingham in the Midlands are being lined up for a similar process to the one that has benefited Manchester. What they previously lacked was the degree of unwavering focus evident in the Manchester politicians, who also benefitted from a run of power (i.e. continuity) that has lasted several decades now. But they are learning fast.
Transport expenditure is closely linked to reduction of welfare dependency
In addition there are benefits accruing from more regional government and the spending power it generates that have long been championed by Manchester and which are being more widely recognised among economists generally. Chief among them is that transport is such an essential driver of the economy that expenditure on it is critical to reducing welfare dependency because large projects within the domain can alleviate unemployment across all strata, both blue and white collar.
Greater Manchester for example has GBP22 billion allocated to present and future transport projects while Crossrail’s bill alone comes to at least GBP15 billion. A further benefit accruing of course is the narrowing of the fiscal gap that occurs as a consequence of more people in work and paying taxes.
The UK retains, however, one of the most centralised democracies in the world, and that needs to change if these cities, and others, are to fulfill their potential as the economic powerhouses of the north of England as envisaged by Chancellor of the Exchequer.
Broadly speaking, the UK's Chancellor goes along with a northern regional proposal for a high speed rail line to run across the 140-mile wide east-west area of the north country of England where these cities are situated, enabling them over time to evolve into a sort of Los Angeles-style mega city of over 20 million people that can compete economically with London domestically and with other better developed regions in mainland Europe, such as Bavaria for example. A similar proposal was first made by John Prescott, a long serving Transport Minister in the previous Labour Government.
The Chief Executive of Manchester City Council, the influential Sir Howard Bernstein, has implored Chancellor Osborne to fast-track the scheme and to ‘devolve’ it to these city-regions on the basis that the UK (i.e. its government) is hopeless at planning, while it excels in micro-management.
It is evident though that not all of England is in London and the southeast, or the big northern cities either. What happens to those areas and towns that fall into neither category, like Norwich, Middlesbrough, Carlisle (on the Scottish borders), Hereford, and Gloucester? And the smaller towns between them? That's not to mention the coastal towns, all the way around the country, many of them comparatively impoverished. Where do they all fit into this brave new world of economic nirvana?
The Deputy Prime Minister, Nick Clegg (Liberal Democrat), referred to this conundrum when, in the immediate aftermath of the Scottish No Vote he highlighted the need to get “Whitehall” to let go of the purse strings in order to move forward with decentralisation.
When asked about how to support other cities, as well as the North’s core cities, Mr Clegg said: “It’s about how do we spread the goodies between the North. Other cities are of course included - it’s not just Leeds, Sheffield, etc.” (Mr Clegg is an MP for Sheffield)
Voters will now be more concerned with local services - now! - than grandiose future schemes
Already there is adverse reaction to, for example, the ‘One North’ scheme as it is known, that was alluded to above from people who are more concerned with the here and now. For example, why are rail services from Grimsby and Cleethorpes (on the English east coast) to Manchester Airport being curtailed?
Many voters are far more concerned with contemporary operational matters then they are with big strategic plans that will not see the light of day until long after they are dead, and the government is all too aware of that as the May-2015 general election approaches.
So in summary: there is an extremely complex political picture evolving, within which key strategic decisions on the UK’s future transport needs will have to be made. This will be within the context of local rivalries and the short-term interpretations that the plebiscite puts on government proposals. And all of this is tempered further by the desires of the environmental lobby, which is not going to go away.
The main features of this political landscape are:
- Whether or not the 18-Sep -2014 vote on Scottish independence (‘No’) turns out to be the last one in this generation or whether ‘events’ will transpire to put it back on to the agenda, and, if so, how soon;
- How the three individual political parties (plus UKIP) react to the Scottish result in terms of how much they really support devolution for England and further devolution for Wales, once the dust has settled and emotions are not running so high.
- To what degree there is a genuine desire for such devolution across the entire English and Welsh population, not just in the city-regions and urban counties, not just Greater Manchester and the North West for example, which have been held up as potentially suitable destinations for powers in the first instance. Will there be areas where people feel they could become second class citizens under such an arrangement? How can everyone benefit from such change?
- One other factor that has not been mentioned so far, namely the referendum on the UK staying in, or leaving, the European Union once the UK’s terms of membership have been renegotiated, which is an ongoing procedure. Mr Cameron promised this referendum for 2017 if the Conservative Party is elected to be the government in May-2015.
Other parties are not so keen, to put it mildly. Bizarrely, the Airports Commission, in its Dec-2014 Interim Report into UK Airport Capacity made no reference whatsoever either to the Scottish independence vote or the proposed EU referendum, which could be considered a rather serious oversight. Indeed, the word ‘Scotland’ appeared only twice in a 228-page report; once in a footnote and once in a chart.
The timetable for change, assuming it is agreed, does not allow for much time to be allocated by government to the Davies (Airport) Commission Report on UK airport capacity, as we have said before. This is despite the anticipated publication of the final report around the time of the general election and a probable statement on what the decision is expected to be before the end of 2014.
Labour is stressing the importance of national infrastructure - but not quite "out of the long grass"
The political parties, and especially Labour, which was first to hold its annual conference this year, are quite animated about the airports debate. For example the Shadow Chancellor, Ed Balls, in a speech to the conference, pledged on 22-Sep-2014 no more “dither and delay” on the UK airports capacity issue; instead the Shadow Chancellor insisted that there must be a rapid and final decision after the next election on the site for new runways.
His Shadow Transport Secretary, Mary Creagh, in a speech the following day, made much the same point, saying, “This government has neglected our national infrastructure. More airport capacity is vital to Britain's economic success, but David Cameron was too weak to deliver it. So he kicked it into the long grass. The next Labour Government will make a swift decision on airport expansion in the national interest”.
But even then Mr Balls’ next statement was indicative of the mental confusion the parties have got themselves into on the issue. He said, "Whatever the outcomes of the Howard Davies review into airport capacity, we must resolve to finally make (sic) a decision on airport capacity in London and the South East - expanding capacity while taking into account the environmental impact. No more kicking into the long grass (clearly the buzz phrase of the conference), but taking the right decisions for Britain’s long-term future.”
Like so many other politicians, Mr Balls appears to have forgotten that the Davies’ brief was to solve the UK airport capacity problem and presents his listeners with an oxymoron, a London resolution to a UK problem. Not only that; he makes his comments just at the very moment that the population is coming to terms with the very real possibility of separate regions assuming greater control over their own futures in policy areas such as transport.
The lack of joined up thinking in government and aspiring government has never been more evident.
To return to the main thrust of this report. The frenetic level of political activity in the aftermath of the Scottish result is most likely, as we have argued previously, to relegate aviation matters to the second division or even to cast them aside entirely.
In the event that they are brought in to the wider debate (from within their own longstanding debates in some cases) this is how things might pan out.
Air Passenger Duty in Scotland would go first; but the central government will be loath to allow it
In the first instance the despised Air Passenger Duty (APD) may well be reduced or even eliminated altogether in Scotland. While it was too esoteric a subject to have been included in the ‘vow’ as a specific pledge it would be a relatively painless way of making friends in Scotland, and especially with those corporate executives in the transport industries who supported the ‘Better Together’ campaign.
In the Scottish government’s online publication ‘Scotland’s Future’ (Nov-2013, http://www.scotland.gov.uk/Publications/2013/11/9348/15) it stated:
125. What will happen to Air Passenger Duty in an independent Scotland?
- Air Passenger Duty is currently set by the Westminster Government. With independence, the Scottish Parliament will be able to set Air Passenger Duty at a level that suits Scotland - or abolish it entirely.
- It is estimated that Air Passenger Duty will cost Scotland more than GBP200 million a year in lost tourism spend alone by 2016. In addition to the direct losses to the Scottish economy, another report earlier this year found that reducing Air Passenger Duty would increase receipts from other taxes, such as VAT.
- As an early priority for action following independence the current Scottish Government proposes a 50% reduction in APD, with a view to eventual abolition of the tax when public finances allow."
But a reduction of ADP in Scotland would immediately alienate the air transport industry and its supporters in northeast England, the location of the closest functioning commercial airport to the Scottish border, Newcastle.
In anticipation of such an eventuality Newcastle International Airport has already begun to instigate lobbying of politicians at the party conferences to prevent plans by Mr Salmond (who has now been replaced by the no less belligerent Nicola Sturgeon as the de facto SNP party leader and First Minister pending her formal election) to reduce the APD in Scotland.
The airport has expressed concern that reduced fares in Scotland might prompt an exodus of passengers and airlines to Scottish airports. Mr Salmond had pledged to halve APD in the first term of an independent Scottish Parliament and eliminate it when public finances so allowed. Despite losing the independence referendum, Mr Salmond still wants control over APD to be part of the devolution settlement promised by Mr Cameron and the Better Together campaign.
Potentially, the loss of passenger traffic to the fast-growing Edinburgh Airport in particular, which has gained several long haul routes this year, could have serious ramifications for Newcastle, an area which, as mentioned previously, is at the forefront of ‘English regionalism.’ The effect on Durham Tees Valley airport, 30 miles or so to the south, could be extreme; the final nail in the coffin perhaps, unless it can rapidly build on its freight and alternative land use potential.
The same could be the case for Stobart Air’s Carlisle Airport, which is within 10 miles of the Scottish border on the western side of the UK, and, ironically, only one mile away from Hadrian’s Wall, which was built by the Romans to keep the Scots out. While Southend Airport is the mainstay of the Stobart Group’s thrust into the airport’s business, the company identified Carlisle as a future freight hub (it is essentially a logistics company) with selected passenger services on important routes such as London and Amsterdam.
Indeed the reduction or elimination of APD in Scotland potentially could have even further reaching consequences for the English airports at Blackpool, Leeds-Bradford and Liverpool. It is unlikely to have any significant effect at Manchester but if it did the outlook for any future British government would be severe. The powerful MAG (Manchester Airports Group) is not to be messed with and stands as a torchbearer for corporate enterprise in all the regions. Any such preferential arrangement for Scotland that had an identifiable imposition on an English region would without doubt spur on the demand for both English and regional devolution, and for it to be sooner rather than later.
The only part of the United Kingdom in which there has already been an elimination of Air Passenger Duty is Northern Ireland (NI). The Finance Act 2012 enabled the formal devolution to the Northern Ireland Assembly of the power to set the rates of APD on direct long haul flights (Bands B, C and D) that take off from Northern Ireland. Powers to set the rate of APD on short haul (Band A) routes were not devolved as part of the Finance Act 2012.
From 01-Jan-2013 the rates for direct long-haul flights from NI were devolved to the Northern Ireland Executive, and set at GBP0 (ie zero).
The reason for the APD devolution decision in NI was the reduction in passenger duty at Republic of Ireland airports, which led to a loss of traffic from Belfast to Dublin in particular. Any reduction in Scotland would adversely and directly affect English airports for the first time.
Against all this must be weighed a simple economic fact of life for the British. Despite a consumer-spending led economic ‘recovery’ in the UK in 2014, the deficit still stands at some GBP75 billion and it will be around for a very long time yet. The discontinuation of the ‘nice little earner’ APD across the country – or even just in Scotland - may be no more than a pipe dream irrespective of the economic ramifications.
Beyond the APD issue there are many other ways in which the post-independence debate could impact on the UK aviation scene, with greater effect.
Regionalism potentially destabilises the current aviation balance
For the airlines the ‘break-up’ of the UK could offer both a dilemma and an opportunity and in either case it would be influenced by the degree of the break-up. The largest airlines in the UK operate on a national basis in the short-medium haul sphere, for example easyJet, Ryanair (which remains Irish-registered) and Flybe, with the exception of British Airways, which remains London-centric and which does not fly any direct international services, other than a handful of franchised ones, outside of Heathrow, Gatwick and London City airports.
The mainly long haul Virgin Atlantic’s services are Heathrow and Gatwick based but with a growing number of services out of Manchester (including a recently announced route swap with shareholder Delta Airlines on the Manchester-Atlanta route), Glasgow International and, from 2015, Belfast International.
Thus there is an argument developing that the remainder of England should have a ‘national airline’ of its own, perhaps to be focused on the leading provincial airports just as BA’s Birmingham and Manchester divisions once were. It is possible that one region could take the highly risky course of going it alone with such a venture, but only as a precursor to an expansion of short-medium haul services at other regional airports later. Long haul services would inevitably be focused on one ‘hub’ airport, just as they are now in the case of Heathrow. (See below for ‘where?’)
The reason such an airline would be valuable to devolved regional centres is directly connected to the necessity of ‘flying the flag’ in foreign markets. Provincial business leaders are starting to argue that foreign business people cannot make a direct flight on national flag carrier British Airways to their particular region – which subliminally may suggest that market is not worth visiting.
Such an airline might result from one or more mergers and that is probably a more likely scenario than the emergence of an entirely new carrier. Several initiatives for such a new airline over the years have come to nothing.
....especially if the UK left the EU
Any such airline, and the existing ones, would not have to operate outside the agreed parameters of Open Skies in Europe unless there was a formal state of independence sought out by England, or by any of the English regions, or Wales or Northern Ireland (which has surely had enough of such political ‘troubles’ over the last few decades to wish to seek out more).
At least that would be the case as long as Great Britain and/or any devolved regions within it remained a member of the European Union. For example if England chose to leave the EU that would be a new ball game entirely, involving an individual request for (re)-entry into the EU just as Scotland would have been required to do, and into the terms under which aviation functions within it.
In the unlikely event of a refusal (or at least less likely than in the case of the Scots) it would be more likely that England would continue to participate in Open Skies on a partner basis, either through membership of the European Economic Area or within the Common Aviation Area structure.
England could continue to participate in Open Skies agreements such as that between Europe and the US as a devolved region but if it sought independence then re-admittance to the EU would determine that participation. Clearly that would impact the operations and future plans not only of transatlantic airlines but also of all the alliances.
If Great Britain and Northern Ireland as a whole (the United Kingdom) chose to ‘brexit’ the EU after 2017, then much of the above would also be the case.
Much of this theorising will probably remain just that, though. There is no obviously discernible demand for an independent England just yet; rather just one that has more powers to determine its own destiny. But things move quickly in politics and there are many so far unknown outcomes, such as what effect UKIP will have on the 2015 general election result that could yet influence future decisions for airlines. And in the light of renewed bullish statements from the SNP about Scottish independence in the week commencing 22-Sep, the further straining of relations between the two countries cannot be ruled out.
Beyond the EU, the existing bilateral air service agreements (ASAs) between the UK and other nations should not be affected by any switch towards regional self-determination except, again, in the event of the quantum leap beyond that to independence for countries or regions within them (thus becoming separate countries). In such an eventuality renegotiation of ASAs would be required. And in some cases not before time.
There would be no impact on the fundamental building blocks of industry regulation
It is doubtful whether devolution in England (or England or the UK leaving the EU) would have any significant effect on the building blocks of the aviation industry, such as the 1944 Chicago Convention. That fundamental regulatory instrument was a catalyst for a series of agreements made since, that govern the organisation of air transport in Europe and other continents.
Essentially, Open Skies has become the norm for European operations and the determination and circumscription of airline operations within Europe and between Europe and elsewhere would rest within the remit of established procedures. It would be no different from the separation of Somaliland from Somalia, East Timor from Indonesia, or the attempts to separate Quebec from Canada or Catalonia from Spain in respect of those basic building blocks.
…nor on Air Traffic Control
Neither would it be likely to have any significant impact on the organisation of air traffic management in Europe, where there has been a pressing urgency to centralise control (the Single European Sky) for many years; one that is being tackled at length by the SESAR Joint Venture PPP scheme. Co-ordination is managed under the European Commission initiative throughout the European Union, or more precisely the ECAA (see graphic below).
Within the UK itself, organisation of air traffic control is split between two centres, at Swanwick in Hampshire, England (which mainly controls London area and military operations) and Prestwick in Scotland, operated by the public-private enterprise National Air Traffic Services (NATS). There was never any suggestion of a change in this management if Scotland had become independent. In the Scottish government’s online publication ‘Scotland’s Future’ (Nov-2013, http://www.scotland.gov.uk/Publications/2013/11/9348/15) it stated:
103. Will an independent Scotland still be covered by the Civil Aviation Authority?
- Powers over civil aviation will transfer to the Scottish Government and Parliament as a result of independence. After that, decisions on this will be made by the Parliament and Government of an independent Scotland.
- We propose to retain the current regulatory framework governing aviation on independence through a memorandum of understanding with the Civil Aviation Authority (CAA). The CAA will report to the Scottish Government on regulatory matters affecting aviation in Scotland.
- Building on this initial arrangement an independent Scotland can develop its own regulatory body in due course.
128. How will air traffic services be managed in an independent Scotland?
- Airspace will be managed in the same way as it is currently managed with the emphasis on allowing the free and safe movement of aircraft.
- The Westminster Government has a 49% shareholding in National Air Traffic Services (NATS) and one of its two operational centres is based at Prestwick.
- On independence, it is the intention of the current Scottish Government that NATS will continue its services for Scotland. The Scottish Government will negotiate an appropriate share for Scotland of Westminster's stake in NATS."
There is nothing at this stage to suggest a fragmentation of NATS in the event of any separation of, or devolved powers to, England or parts of England. However, in the event of an enhanced hub airport emerging outside of London to reflect such devolution regional centres such as the Manchester Area Control Centre, which was downgraded to be a part of the Prestwick operation, may regain their previous degree of importance as a standalone entity.
Devolution could open the door to opportunities in aircraft financing
The biggest opportunity for change in the industry arising from devolved powers in England (as may be the case in Scotland, too) would undeniably be in the arena of aircraft financing and leasing. For many years economically successful regions of the UK (by which we mean London and the Southeast mainly but also to a lesser degree the Manchester and Leeds city-regions latterly) have coveted the opportunity to attract high value industry commerce, but have been thwarted by high rates of national taxation in comparison to their foreign competitors, allied to a reduction in their ability to offer attractive land and other rental terms as powerful regional investment agencies were axed by the Coalition government.
This state of affairs has prompted desperate pleas from regional authorities for central government to find the funds to underwrite developments in critical industries. One notable success has been the joint funding of the National Graphene Institute in Manchester by the UK Government and the EU’s Research and Development Fund. Graphene, the strongest and lightest substance known of, was invented at the city’s main University.
Ironically with respect to the air transport industry, the building will provide space for University researchers to collaborate with UK industry and other UK universities that are involved in graphene research via a ‘hub and spoke’ model.
This activity will offer encouragement to this and other regions that they could, with devolved powers, be able to attract aircraft financiers for example. During the last three decades the Republic of Ireland has become second only to the United States in aircraft leasing and trading activity. In the past year, it is estimated that financing of the order of USD20 billion has been undertaken through Ireland, mostly through the channel of its aircraft leasing companies. This equates to over 20% of total aircraft financing undertaken globally. This situation arose at least partly as a result of the fiscal, regulatory, and financial structures that are available there to what are some of the most innovative financing and structuring companies in the world.
In order to attract business of that order, and to take it away from Ireland, where it is so well established now, Scotland, Northern Ireland or any devolved English region would, for starters, have to be able to match, or preferably better, Ireland’s corporation tax, which in 2014 is just 12.5% on trading income, compared with a base rate of 20% in the UK. Apart from the Scots, Northern Ireland is keen to have a reduced corporation tax under its own control.
There are other influencing factors though, such as personal taxation rates, sweetener deals and soft loans on property rentals and the regular availability of suitably knowledgeable staff.
English regional airport investment could be influenced by the location of a future English capital - some high speculation...
The final piece in the jigsaw puzzle, for now, is exactly where investment in airport infrastructure would go in a devolved England or English regions. The Scottish and Welsh governments have already taken matters into their own hands by seizing control of Glasgow Prestwick and Cardiff airports, both of which were previously ‘failing’ by most reasonable measures of success under private sector ownership.
Devolved English regions would undeniably feel the same way about their airports although the majority of English airports are not actually faced with closure right now, even if they are not making money in too many cases.
In this sense it depends again on just how far devolution goes. If a separate English Parliament to govern England were to be set up, where would it be? It would be wrong to assume it would automatically be in London. The very idea of both the British and English parliaments being co-located in London is anathema to many people.
In the - very unlikely event of a move - there are several contenders that come to mind immediately, for example Winchester in Hampshire(the Anglo Saxon capital of Wessex, and by implication England, even if the capital was a moveable feast at that time); Birmingham (close to the very centre of England); Manchester (the most economically successful city outside of the southeast and generally regarded as the ‘second city’ by most people); and York, the ancient Roman and Viking city, the capital of the Roman province of Britannia Inferior, and of the northern ecclesiastical province of the Church of England. (There are only two archbishops in England – at Canterbury and York).
If the English capital were to be in London the status quo would apply where investment in concerned; the national aviation focus would continue to be on London and the southeast and decisions made by the Airports Commission to date would be in keeping with such a decision.
If a northern capital were chosen, or if power was devolved to a particular English region (such as the northwest) then it would be an entirely different ball game and especially if independent fiscal powers were granted to those region(s). All the English regions are at least simply more populous than Ireland or Scotland and some of them are almost twice as big. The GDP of Greater Manchester is more than that of Wales.
When these statistics are added to those mentioned previously concerning the enhanced surface transport infrastructure that is being planned in some areas it is clear that semi-autonomous regions like these will require a ‘hub’ airport to support them in international markets, together with the additional administrative staff (such as Civil Servants). The physically small nature of the country legislates against more than one such airport. So where would it be?
Much of the evidence suggests it would be Manchester, which is at the centre now of a catchment area that stretches to 25 million people at its furthest limits.
That airport would embrace an economically and potentially governmentally self-supporting region including major cities such as Manchester, Liverpool, Leeds and Sheffield; those same cities that are targeted by the One North scheme referred to earlier that would link the east and west coasts and the ports on them, creating an economic corridor through a multi-centred regional economy not unlike the Rhine-Ruhr region in Germany or the Randstad in the Netherlands.
On the other hand Birmingham Airport, which was by far the most active regional airport both in its submission to the Airports Commission and in challenging the ‘Heathrow or Gatwick only’ findings in the Commission’s Interim Report, certainly has a strong case, one that was reinforced by the Apr-2014 opening of its runway extension to over 3000 m, which permits long haul travel to, for example, Southeast Asia, at full load.
What is most certainly the case is that regional devolution of this order would render much of the Davies Commission’s recommendations so far as anachronistic, to the point where, as hinted at in this report’s title, it would threaten to ‘tear up’ previously recognised transport pathways.
Merely taking an overview of these evolving scenarios is difficult, let alone drawing any conclusions.
One thing that can be said for sure though is that there are no certainties any longer and that the Airports Commission especially needs to be aware, at a critical moment in its deliberations, of the many potential outcomes that might still arise.