The minority Scottish National Party government has appealed to the UK government to help it overcome the problem.
It has been committed to cutting Air Passenger Duty (APD), which was devolved to Holyrood last year and is due to be relaunched next April as Air Departure Tax (ADT).
But airports in the Highland and Islands have been exempt from APD since 2001, and transferring the exemption to the new tax would require the approval of the EU Commission, on a formal notification from the UK government, under EU restrictions on state aid for industry.
Finance secretary Derek Mackay said the UK government had refused to refer the matter without “unacceptable conditions”, and it is thought unlikely that the process could be completed before Britain leaves the EU.
The UK government, Mackay said, had recommended that Scotland delay introduction of the new tax until the matter can be resolved.
Mackay has instead suggested that the UK government should adjust Scotland’s block grant funding through the Barnett Formula to allow the Scottish government to deliver an equivalent £320m package of benefits to Highland air services through other tax mechanisms.
“I cannot see ADT put into operation with this significant uncertainty hanging over the Highlands and Islands,” Mackay told MSPs in a statement today.
“I therefore urge the UK government to step up to the plate, to recognise their responsibilities and to support our proposal which would enable ADT to go forward as planned without causing harm to the Highlands and Islands' economies.”
The duty cut has been contentious from the outset, with only the Tories supporting it in principle, and opposition critics were quick to deride the Scottish Government for beating a retreat from the policy, a charge Mackay denied.
Murdo Fraser, the Tory finance spokesman, accused Mackay of “weaseling out” so as to curry favour with the Greens and thereby solicit the support he will need to get his budget through later in the year. Mackay said he stood by the policy, and blamed its problems on the UK government.
Labour’s Neil Bibby urged Mackay – in vain – to guarantee that the reduction in duty would be shelved for the remainder of this parliament, while both the Greens’ Patrick Harvie and the Liberal Democrats’ Willie Rennie welcomed the delay.
Mackay said that the responsibility for resolving the impasse now lay with the UK government.
The Scottish Government wants to cut air passenger duty by 50% with the devolved ADT before eventually scrapping it completely, which it says will boost the economy by increasing the number of flights to and from the country.
