Heathrow, Britain’s biggest airport, is preparing a legal challenge against the government’s decision to scrap VAT-free shopping for international tourists on goods such as perfume, clothes and electronics.
In a letter to UK finance minister Rishi Sunak from Heathrow’s chief executive John Holland Kaye, co-signed by tax refund specialist Global Blue and the World Duty Free Group, the airport said it wants a judicial review of the decision to abolish the VAT Retail Export Scheme and withdraw airside tax-free shopping in all UK airports at the end of this year.
The move, which comes as the aviation and retail industries are already struggling amid a second Covid-19 lockdown, would cause "irreparable and unnecessary damage to high streets and airports across the UK".
“We believe there are solutions available that can address concerns, while protecting the UK’s competitiveness as a shopping destination and airport retail in a year that will be so critical as it recovers from the worst year in history,” the claimants involved said, in a joint statement sent to The National. “All are responsible for employing thousands of people and securing billions of inward spend each year. We are exploring all options available to us on this decision.”
In September, the government said tax-free shopping would end for all visitors to the UK after the end of the Brexit transition period on December 31. The move will prevent non-EU visitors from receiving a VAT refund on items they buy in Britain and take home in their luggage. It will also stop tax-free sales on goods such as clothes, electronics and perfumes bought at airports. VAT stands at 20 per cent.
Industry bodies had expected the government to extend the scheme to include EU nationals once the Brexit process was completed.
Now they fear that wealthy Middle East and Chinese travellers will be discouraged from flying into the UK to shop once the tax rebates are abolished.
“In this consultation period the Government stated in March that “following the transition period, the UK is minded to extend airside tax-free sales to those travelling to the EU,” John Holland Kaye said in the letter.
“We were therefore deeply shocked and concerned to learn that the Government will instead withdraw tax-free shopping altogether, making the UK the only country in Europe not to offer such a benefit to international visitors."
In September, the government said the post-Brexit changes would also bring benefits, with EU passengers travelling from the UK able to buy alcohol and tobacco without paying VAT and excise duty once they have passed through security controls.
It said overseas visitors would still be able buy VAT-items in stores and have them sent directly to their overseas addresses.
With less than 10 per cent of non-EU visitors to the UK using the VAT refund shopping scheme, extending the scheme to EU visitors could cost up to £1.4bn ($1.8bn) a year, according to HM Treasury.
In the letter, Mr Holland Kaye said the government was yet to publish a comprehensive economic impact assessment of its decision, and said the Treasury had “failed to take in to account a second wave which has plummeted millions more into lockdown and unable to work as hotels, ‘nonessential’ retail and tourism numbers remain decimated”.
“Coupled with slow progress behind a testing regime that will facilitate safe tourism into the UK, and no meaningful recovery plan for struggling sectors, this decision will put us on the back foot as the world looks on post-Brexit,” he wrote.
Last month, UK retailers, hoteliers and airports said scrapping VAT-free shopping would put 70,000 jobs at risk and trigger a £10bn reduction to spending in British stores and cost the UK finance ministry £2bn in lost tax revenue.
Mr Holland Kaye's letter said a further 25,000 UK jobs reliant on tourism spend, such as positions in theatres, restaurants and hotels, would also be put at risk from the move.
"It is not too later for the government to review this decision," Mr Holland Kaye said.
Heathrow was overtaken as Europe's busiest airport for the first time by Paris Charles de Gaulle late last month, amid falling air travel demand during Covid-19, as almost 200 airports in the continent face going bust by the end of the year, according to ACI Europe.
Retail executives including leaders from Fortnum & Mason, Ted Baker and Paul Smith said last month that the tax changes would encourage tourists to "spend their money in Paris, Milan or Madrid" rather than Britain.