HUNDREDS of thousands of passengers are expected to desert a North-East airport if Scotland exploits new freedom to slash taxes, George Osborne has admitted.

A Government study found Newcastle Airport will lose ten per cent of its “traffic” if air passenger duty (APD) is cut significantly north of the border, the Chancellor said.

The admission – in evidence to MPs – is the starkest evidence yet of the threat to regional airports from the controversial decision to devolve responsibility for APD to Edinburgh.

Newcastle Airport boasts about 4.5m passengers a year, so a ten per cent cut would mean a loss of 450,000 passengers – or of about 6,000 annual flights.

Speaking to the Treasury select committee, the Chancellor said: “You can envisage the situation where a big fall in air passenger duty in Scotland does have on impact on passenger numbers, particularly in the North-East.

“We should look at what we can do to support those regional northern airports to make sure they don’t suffer a loss.”

However, Mr Osborne offered no solution to the problem – instead suggestion the Conservatives and Labour work together to find one.

The airport said it was hopeful a solution would be found.

A spokesman added: "We have established this is an important issue for the airport and the region and have engaged in an active discussion with the Government."

In November, all three main Westminster parties agreed that APD should be handed to Holyrood as part of the “devo max” settlement following the ‘no’ vote on independence.

Labour had opposed the move, but did a U-turn to avoid SNP anger with the general election looming – to the fury of many of its MPs in the North-East.

The SNP has set out plans to halve rates of APD in the short term – and to abolish the tax altogether eventually.

Sedgefield MP Phil Wilson has called for regional variations in APD rates, allowing London to react to cuts in Edinburgh to protect the North-East, if necessary.

But shadow chancellor Ed Balls has insisted it is matter for Mr Osborne and a spokesman ridiculed his suggestion of a cross-party approach, saying: “He still hasn’t replied to our letter on this from November.”

The Chancellor’s comments make clear that neither the Conservatives nor Labour will set out a policy for Northern airports at the May general election.

Newcastle Airport has warned of devastating consequences if the SNP slashes APD, suggesting 1,000 jobs will be at risk, draining £40m from the region's annual economic output.