Tax-free shopping for tourists must not be abolished

With the end of Britain’s transition period on Dec 31, EU rules will cease to apply in this area, and ministers are proposing two major changes. The first, which we welcome, is to extend duty-free sales to passengers travelling to all destinations, including within the EU, and to increase the alcohol allowance.

But the second is the ending entirely of tax-free sales, regardless of passenger destinations. Such sales are not some frivolous add-on to the “serious” business of civil aviation. For some airports, this will mean the loss of 35 to 40 per cent of their revenues, according to independent research by York Aviation. 

This represents a huge missed Brexit opportunity, an almost wilful shooting of ourselves in the foot. One possible explanation is that the Treasury hopes slapping VAT on airport sales will rake in some the tax revenue that will be needed to repair gaping holes in the public finances in the wake of virus-related spending.

But this would depend upon sales continuing at much the same level as now, with consumers cheerfully paying higher prices. Any economist, of whom the Treasury is thought to employ several, would tell you that incentives affect people’s behaviour, not least their spending patterns.

Should this proposal be enacted, then leading airports, caught in the nutcracker jaws of the coronavirus crisis and the loss of shopping revenue, will haemorrhage cash. Heathrow is forecast to lose £744m in operating profit next year, with Gatwick losing £197m and Manchester £112m.

The wider question is how such a move can be squared with the Government’s stated aim to support the country’s aviation sector, about which a policy paper is due to be published. On the contrary, it would undermine the UK’s enviable position as a global travel hub, whose geographical position allows it to serve travellers to and from every major continent.

Further diminishing the UK’s attraction to affluent international travellers from China, the US, Middle East and elsewhere is a parallel proposal to abolish the VAT refund scheme, under which non-EU travellers are rebated the tax on goods they buy and then take home with them. 

Again, this will be cheered by competitors across the Channel, to whom Mr Sunak and his colleagues must appear as generous benefactors.