A LIFELINE discount on flights from the Highlands has been cast into doubt and risks causing a "catastrophic" blow to the region’s economy, the country’s finance secretary has warned.
Flights out of the Highlands are currently cheaper than they would be as the north is currently exempt from a tax on flying out of the UK.
But problems in devolving the issue to the Scottish Government have shown the discount for the Highlands and Islands may not comply with EU law.
Now Scotland’s finance secretary Derek Mackay has announced the exemption may have to be abolished for the first time since it was created in 2001, which will see the cost of flights out of Inverness and Wick John O’Groats rise.
During a statement at Holyrood, Mr Mackay blamed the UK Government who "got us into this mess" and said the Scottish Government needs permission from the European Commission to retain the Highlands and Islands discount as the air passenger duty (APD) tax has been devolved to Edinburgh, but it must be taken forward by the UK Government, as the EU member state.
Under the newly-devolved powers, the SNP Government had plans to replace APD with a new Air Departure Tax (ADT) from next April but the finance secretary acknowledge this will likely be postponed due to the wrangle with the new legislation.
"This government and this parliament cannot act in a way which is contrary to EU law and after very careful consideration we have concluded that in order for the Highland and Islands exemption to be compliant with EU law and state aid regulations it must now be notified for approval to the EU Commission but as member state only the UK government can do this," he said.
"Aviation is critical to the Highlands and Islands region, helping to support a diverse range of businesses and also helping residents from the more remote regions to access essential services that cannot be provided in their areas and without it their is real risk that the Highlands and Islands will suffer economic detriment.
"Many involved in the sector would say it would have a catastrophic impact on the fragile economy if the exemption could not be continued."
Mr Mackay added that the only other option is to make all tax bands zero, which would cost around £320 million.
"The conditions the UK government have sought to impose are clearly not acceptable.
"Having got us into this mess it is patently unfair that the UK Government is only willing to fix it if the Scottish Government agrees to pay the cost of any mistakes made."
Mr Mackay said he had written to the UK government asking for the block grant given to Scotland from Westminster to be adjusted to cover the cost if necessary.
But the UK Treasury denied responsibility and said the Scottish Government must design the tax appropriately.
A spokesman said: "It is disappointing that the Scottish Government has been unable to design a tax which is compliant with EU law.
"It is wrong for them to try and pass the blame for their unwillingness to take responsibility for their own tax."
Skye, Lochaber and Badenoch SNP MSP Kate Forbes welcomed the Scottish Government’s commitment to keeping the discount in the north, while Scottish Liberal Democrat leader Willie Rennie accused Mr Mackay of "recklessly risking" the discount to give himself "political cover".
Ms Forbes added: "The Highlands and Islands exemption for APD is a lifeline for many island communities who depend on flights for work or visiting family and friends.
"I do think it’s strange that the UK government is dragging its feet to get the necessary clearance from the EU because, as the member state it is firmly their responsibility."