I will be calling Gavin Newlands shortly, but I warn Back-Bench Members that I will be imposing a five-minute time limit straight away—this is a short, 90-minute debate —to allow time for the Front-Bench spokespeople. When the time limit is in effect, there will be a countdown clock visible on the screens of hon. Members participating virtually and, of course, on the screens in the Chamber.
I beg to move,
That the Travellers’ Allowances and Miscellaneous Provisions (EU Exit) Regulations 2020 (SI, 2020, No. 1412), dated 3 December 2020, a copy of which was laid before this House on 3 December 2020, be revoked.
We fully support the extension of duty-free shopping for people travelling to the EU, which is surely the thinnest of silver linings on the huge, grey thundercloud that is Brexit. However, the withdrawal of the VAT retail export scheme and the airside extra-statutory concession represents a real threat to thousands of jobs across Scotland and the UK.
The Treasury’s own consultation showed that an overwhelming majority of respondents were against the abolition of RES. It is trying to grab us with the HMRC guidance on the measures stating that the withdrawal
“may have a marginal impact on retailers in Great Britain.”
But even the Office for Budget Responsibility found that the Treasury has not taken into account the indirect impact on businesses outside the retail sector, showing the modelling undertaken by the Treasury to be fundamentally flawed and based on entirely incorrect assumptions and figures. The supply chain considerations are completely missing from the HMRC statement, with not a word about the manufacturers and suppliers outside of direct retail that will find their bottom line impacted by the disappearance of RES as we know it.
Nor has HMRC shown itself to be entirely accurate in its understanding of the fiscal impact of abolition. Its technical note conflates the number of sales with the number of passengers, underestimating the use of RES by up to 75%. It focuses on the direct benefits to London and Bicester Village, ignoring the indirect impact on travellers from regional airports transiting to their final destination outside the EU, thus underestimating the demand for the extra-statutory concession at these airports.
In short, the attempts of HMRC and the Treasury to justify their decision smack of a post facto race to find facts that fit their narrative, rather than a proper analysis of the pros and cons of both the retail export scheme and the extra-statutory concession. Anybody who thinks this is purely about high-end retailers and retail rent income at airports is ignoring the implications for businesses up and down the land, which are robbed of outlets and goods and seeing demand from overseas visitors shrivel when it should be increasing as we move out of the pandemic.
That is not a good starting point for the Treasury’s actions, and it does not take a world-leading economist to see that two of the industries hardest hit by the pandemic are retail and aviation. The abolition of RES is another blow to each of them. It is perhaps not game-changing in isolation, but it is yet more chipping away at the foundations of employment in my constituency and right across the country.
Edinburgh’s Princes Street, to take one example, has in the past few weeks seen Debenhams and the city institution Jenners fall victim to the pressure on retail, not just from the pandemic but from the wider trends across the sector. Removing RES will hit shopping in the city even harder and will cause even more jobs to be lost at a time when hundreds are already going.
Let me address the way in which the decision was taken. There was no engagement whatsoever with the Scottish Government or, presumably, with any other devolved Government, despite the obvious implications for our retail and tourism sectors. That is utterly disrespectful and counterproductive. I want to see all these decisions taken for Scotland, by Scotland, and while we are part of this Union, it should be incumbent on the Treasury and every UK Government Department at least to speak to their counterparts in the devolved Governments about proposals that will have a serious and detrimental impact on their citizens. If they had engaged, they would have heard the Scottish Government’s real concerns. Scottish Finance Secretary Kate Forbes was clear as soon as she heard of the changes that she did not and does not
“believe that this is an appropriate juncture at which to make such an abrupt and significant change.”
The director of the Scottish Retail Consortium, David Lonsdale, raised the impact that the policy could have on tax-free shopping in Scotland’s cities. He said:
“The Finance Secretary’s comments are a timely and welcome intervention in support of city centres…The decision could cost Edinburgh city centre, for example, many millions in lost retail sales, let alone the knock-on impact on tourism…This decision would leave the UK as the only European country not to provide a tax-free shopping scheme to encourage tourism. There is a good reason no other European nation has taken this step, and we urge swift reconsideration.”
He is right. Other European countries will take advantage of this short-sighted decision.
Warnings are coming from right across the UK. The president of the UK Travel Retail Forum, Francois Bourienne, said the decision would put
“the UK out of step with travel retail systems around the world”
“completely disincentivises tourists to visit the UK and British passengers making purchases as they go on vacation abroad. It puts UK airports and travel retail at a substantial disadvantage against their European counterparts after Brexit. This will lead to significant additional job losses in the travel industry.”
Hand in hand with the abolition of the retail export scheme is the scrapping of the extra-statutory concession. Again, the consultation found overwhelming—in fact, near-unanimous—support for the continuation of some form of the concession after Brexit, and again the Treasury ignored those responses. Again, we are seeing the chipping away of revenue streams that employ thousands of people throughout the country and are vital for many airports.
Regional airports depend on the revenue from airside shopping to a far greater degree than the Heathrows of this world—in fact, up to 40% of a smaller airport’s revenue is generated through retail, as a higher proportion of its passengers fly point to point rather than domestically through a hub such as Heathrow. The kicking away of this financial crutch at a time of huge pressure on the finances of airports is another blow to an industry that is reeling from the pandemic and, in the case of many regional airports in England, still dealing with the after-effects of the collapse of Flybe.
In Scotland, it is estimated that the abolition of the ESC will potentially result in the closure of most retail outlets at airports, and will result in lost revenue of around £20 million and the loss of hundreds more jobs that neither retail nor airports can afford. To quote the UK Travel Retail Forum again, it said:
“This could be the final nail in the coffin of several UK regional airports.”
At a time when the industry is on its knees, I am concerned that the UKTRF is right.
I want to see a sustainable future for our airports and aviation, but the more the Government unleash havoc for airport operators’ balance sheets, the more I am concerned for their future. It is also difficult to reconcile the Government’s position that continuing with the extra-statutory concession would be against World Trade Organisation rules with the fact that the Government’s own consultation document states that they were
“minded to extend airside tax-free sales”
at the beginning of the consultation process.
There is one way to mitigate some of the damage: the introduction of arrivals duty-free, as we see in operation around the world, including in all European economic area nations—Norway, Iceland and Switzerland—and as we know the European Union is actively considering. It is vital that we do the same. There are many reasons why this is a good idea, not least because it would support a beleaguered sector and help to safeguard jobs.
As I said, retail revenue cross-subsidises other operations and would help to fund new route development, which is critical to the future recovery of not just Glasgow but all our airports. It plays an absolutely pivotal role in supporting regional connectivity, the air travel side of which is worth £4 billion to the Scottish economy—the same as its value to London and the south-east. A report by Airlines UK found that in one year’s time, around 80% of the hundreds of routes lost to the UK aviation sector will be in the UK regional airports outside of London and the south-east. If the Government truly have a levelling-up agenda, they must do something to address that.
It is important to note that arrivals duty-free would have no impact on domestic sales of products; instead, such sales would represent the repatriation of duty-free sales that would otherwise happen outside the UK, where the passenger starts their journey. There would be no impact on tax revenue and no increase in the number of products entering the market, as travellers’ duty-free allowances would remain the same. Additionally, the introduction of arrivals duty-free stores would generate new jobs around the United Kingdom, providing further benefits to the economy through personal income and business taxation. It is not too late for the Treasury to see sense and reverse the decision, if the will is there among those on the Government Benches. The airports and retailers affected by these changes will also be willing to work together to modernise rather than ditch the retail export scheme and the extra-statutory concession.
I know that the Government would not want to be seen as the people behind the collapse of regional airports. Hitting the pause button on the plans would help to secure thousands of jobs that rely directly on these sales and thousands more at the airports across the UK that are at risk if those revenue streams are destroyed. I hope that the Minister will be able to share a positive response to the calls from me and from across the industry for a new approach to benefit the sector and the wider economy, not least because of the millions of pounds in revenue and the hundreds of jobs that the Department’s decision puts at risk at Stansted airport in her own constituency.
It is a pleasure to follow the hon. Member for Paisley and Renfrewshire North (Gavin Newlands), who speaks with such passion about regional airports and their importance. As Members can hear, I, too, am a user of regional airports, not least the fantastic Manchester airport, Liverpool John Lennon airport, and, I confess, Glasgow and Edinburgh airports as well. When a flight is offered with the options of those airports or Heathrow, the choice is clear for someone who is based in the north-west: off you pop to wonderful Scotland and say hi to our friends there.
I will speak to two dry-sounding but important measures in this statutory instrument. The first is extending duty-free sales to UK residents who visit the EU. For the first time in 20 years, we can have EU duty-free on our holidays. I will touch directly on the point that the hon. Gentleman has just made about supporting regional airports. In the last 20 years, who has not wandered through an airport at 3 o’clock in the morning ready to go on holiday and sighed at the duty-free, thinking that it would be a wonderful thing to clink on to the plane with, so that we were all prepared at the other end when we got to the apartment in Greece, Spain or any of the other wonderful holiday destinations that we share and visit with our friends in Europe? Great news: this is now possible. The opportunity to do a little bit of duty-free shopping will not only make a long wait for a flight at 3, 4, 5 or 6 in the morning more interesting, but it will also mean that we can directly support our local airports, which employ people and provide jobs, careers, lifestyles and communities for so many around Manchester, Liverpool and beyond. What else can I say?
What does this measure really mean? It means the return of personal allowances, which will be roughly quadrupled. In short, it means the return of the booze cruise, a long-lost institution that our proud nation has not been able to engage in. It may astonish Members to realise that when I was a child, there was much planning in our family for the biannual trip to France to get some wonderful wine, sparkling wine and beer. It was a military logistical operation, with months of planning, including considerations as deep as how many adults we could fit in the car, which of the smaller adults to fit the acquired goods around, and whether a Ford Sierra or a Ford Orion should be used to maintain the optimal packing-to-adult ratio.
It is a bit of fun, and everybody must drink responsibly, but I massively welcome this. It will give those of us in the north the opportunity to make that six-hour journey down to Dover, go over on the ferry and see some of France, and use our personal allowances to sample something that is not available in the UK and bring it back, while having a bit of fun on a trip for the family. That is all encapsulated in quite a dry SI. I will not trouble the House longer, but the return of the booze cruise is here, and I say “Cheers!” to that.
There are countless examples of this Government leaving it until the last minute to make decisions about what arrangements would be in place following the end of the EU exit transition period. The trade deal with the EU was published only on Christmas eve and considered by Parliament on 30 December, leaving businesses frustrated and unable to prepare fully until the very last minute.
It seems even more frustrating and inexcusable for the Government to have left it so late to make arrangements for the post-transition period when the issues have been known about for years and were not the subject of any ongoing negotiations. Today’s regulations include a prime example The Government have had more than four years since the referendum to get this right, yet they announced their decision to end VAT-free retail both at airports and within Great Britain for all international travellers less than four months before it took effect, in the middle of a pandemic and with no plans to mitigate the economic damage. That is sadly typical of the panicked, last-minute approach that this Government, and in particular this Chancellor, have taken at every turn in recent months. People working in shops, airports, manufacturing and hospitality are going to be carrying the can for the Chancellor’s irresponsible choices.
We accept that, to comply with World Trade Organisation rules, the Government needed to make changes to the regime covering VAT-free shopping; they had to amend the approach to VAT-free and duty-free shopping so that the same rules would apply to both EU and non-EU visitors. As the UK can no longer distinguish between EU and non-EU visitors to Great Britain, the Government had a choice of two options for VAT-free shopping: Ministers could amend the VAT and retail export scheme and VAT-free retail at airports by either extending them or abolishing them for all travellers—and they chose the latter.
The decision has come as a body blow to jobs across the country in sectors desperately hoping that they might be able to start recovering from the impact of covid later this year. Clearly, the frontline jobs immediately affected are those in city centre or shopping village high-value retail, where international visitors make use of the retail export scheme, and in international airports around the country, including Heathrow, where many of my constituents are employed and where travellers make use of the relief on VAT on goods purchased airside. But it is not just those jobs that are set to be hit. Knock-on effects of the changes will threaten jobs in the factories and manufacturers of the goods that tourists come to buy, and in the hospitality sector, as the UK might expect fewer tourists as a result of the withdrawal of the concession. That impact on jobs, of course, comes amid the impact of covid-19, and many are in sectors with a disproportionately high proportion of young and BAME people relative to the wider population.
Given the wide-ranging impact on jobs, it is shocking that the Government did not fully consider the jobs impact of the change before taking their decision. If they were serious about protecting jobs, they would have looked closely at the wider impact of those changes across all sectors affected and throughout every part of our country, yet there is no evidence that they did so, and many of the assumptions in the calculations that they did carry out have been questioned by people respected in the industry. In its reasoning for taking the decision, the Treasury relied on a number of calculations and assumptions about the impact of the change, more detail about which they included in a technical note issued to stakeholders. There is deep concern among stakeholders that many of the crucial figures were flawed, as the Government overestimated the cost of the option of extending the retail export scheme to EU visitors and underestimated the negative impact of ending the scheme for others.
Those affected and their representative organisations, such as Value Retail, have questioned the Treasury’s assumption that non-EU visitors spend the same amount of money as EU visitors, thereby producing flawed calculations of the cost of the alternative course of action, which was extending the retail export scheme to all. They also question the assumption that the low value of many discounts means that they are insufficient to change visitor behaviour, so removing the retail export scheme will not affect how much people spend or their decisions about spending time in the UK.
Given our concern about the impact on jobs, I wrote to the Office for Budget Responsibility ahead of the Chancellor’s spending review in November 2020, asking it to scrutinise the figures and assumptions that the Treasury was using to justify its decision to end the VAT retail export scheme and to consider its wider impact on jobs. The OBR’s reply appeared to undermine what Ministers have been saying. For example, in reply to one of my written parliamentary questions, the Exchequer Secretary to the Treasury, who will be responding in this debate, said that
“the OBR also looked at this package in the round when assessing the indirect impact on the economy”.
However, in its reply to me the OBR seemed to play down the extent of its analysis, confirming that it had not considered the indirect effects of ending the VAT retail export scheme on jobs. Furthermore, it said:
“our remit prevents us from considering impacts on disadvantaged groups or particular geographical areas”.
It seems clear that, despite his or his Ministers’ protestations, the Chancellor went into this decision with his eyes closed: yet again, he failed to consider the impact of his irresponsible decisions on people’s jobs.
My question to the Minister today is direct and I would welcome a direct answer. We know that the Government’s decision to end VAT-free shopping will have a significant impact on jobs. It is also clear that the Government took the decision without fully knowing what the impact on jobs would be after the new arrangements were put in place. As the measure has now come into force and analysis of it no longer has to be based on assumptions alone, I would like to ask the Minister to commit the Treasury to reviewing the impact of the changes to VAT-free shopping on jobs across different sectors and across different parts of the country, and to report back to Parliament ahead of the March Budget. If the Minister will not commit to doing so today, I would be grateful if he committed to raise it with the Chancellor and to ask him to update the House.
I make no apology for being delighted about the return of duty-free and the opportunities it brings to channel crossings. I welcome the jobs and investment that are maintained and boosted by the regulations. As a newly elected MP, I wrote to the Chancellor to ask for the return of duty-free and the Brexit boost it could bring to ports, ferry companies and cruise ships in areas like mine in Dover.
Like my hon. Friend the Member for South Ribble (Katherine Fletcher), as a young woman there was perhaps nothing more exciting than putting on my dotted, spotted ra-ra dress and dancing across the sea on the ferry disco. As an introduction to exotic foreign climes, nothing could quite beat sashaying up and ordering one’s frites et mayonnaise at the chip van in France and Belgium. Shopping at Costco is but nothing compared to the delights of a Calais supermarché. From fancy liqueurs to the rather disgusting but vibrantly coloured sweets, it was a proper day out. It was, I am sorry to say, very many years before I realised that the more common word for the delightfully named “smorgasbord” on the now-defunct Sally Line was nothing more and nothing less than an all-you-can-eat buffet. Never have there been such delights as those rolled herrings! And forget Leonardo DiCaprio: so many friendships and relationships were rekindled and revitalised on the famous evening “Dance to France” between Dover and Calais and back again.
Like so much of the travelling years, while we have gained we have also lost; so focused on our destination, we have lost the pleasure of the journey, for a ferry trip is nothing less than a mini cruise. From ball pits and play areas for the little ones to video games, one-armed bandits and bars for the grown-ups, there is something for everyone to enjoy. And enjoyment is what it is all about—it is fun on the ferries. The regulations we are debating today will do so much to restore those simple and accessible pleasures. They will help to reboot our beleaguered hospitality and travel industries.
Since the virus hit, all of us have learned again the closeness of our family members and the nearness of that neighbourhood walk. When the borders open and the pandemic retreats, let us not forget the wonder and beauty of all that is around us and with us. At that time, I hope that my hon. Friend will join me to see one of the true wonders and beauties of our land: the white cliffs hoving into view from the duty-free ferry.
Before I begin to speak today, it is appropriate that I declare an interest as chair of the all-party group for textiles and fashion, and that I express my thanks to Heather Lafferty and Tamara Cincik of Fashion Roundtable, and Chantelle De Villiers from the British Retail Consortium, for their important work campaigning right across the United Kingdom on these matters.
One of the positives to come out of the pandemic has surely been the celebration of heroes in our local communities, care homes, schools and NHS. We do not often think of retailers, shop owners or small businesses across the UK as some of the heroes of the pandemic, but in reality we should. When we boil down the pandemic to its simplest principles, we see shops and local businesses doing everything they can, even to the point of closure, so that we can keep the most vulnerable in our communities safe. Many of these same businesses will be the first to face the economic and employment consequences of a 7.3% decrease in non-EU visitors to the UK, which is what is predicted by the Centre for Economics and Business Research as a result of the Government scrapping the VAT retail export scheme. So it would be remiss of me, as chair of the all-party group on textiles and fashion, not to focus my remarks today on the impact of this decision on the textile and fashion industry across Scotland and across the United Kingdom.
The Government have gone to great lengths to stress their commitment to levelling up the economy out of the pandemic and to boosting the economic performance of the cities and regions of the United Kingdom way beyond London. In their exit from the VAT retail export scheme, however, it would appear that the Government have fallen at the first hurdle. The Evening Standard reported before Christmas that £500 million of tax-free shopping takes place in over 12,000 stores outside London each year. Fashion Roundtable estimates that the fashion industry in Scotland is made up of nearly 2,000 businesses and employs 30,000 people. In 2019, £92 million in VAT-free fashion purchases were made in Edinburgh and a further £23 million in VAT-free fashion purchases were made in Glasgow and surrounding areas. Each of these purchases supports our high streets, businesses and jobs—high streets that need every purchase to survive at this time, businesses that are at the heart of local communities and jobs that help to provide for families and loved ones.
Hundreds of employees in my constituency are reeling already from the announcement of Boohoo’s takeover of Debenhams and the lack of investment in bricks-and-mortar stores in our town centres. Every single one of them is facing untold uncertainty as to what the future holds, so Government must support the recovery of retail. It is my very present fear that thousands more will be affected across Scotland if we fail to do everything in our power to support our high streets and those who work in them.
Tourism is indeed the beating heart of our high streets and of the fashion industry as a whole. However, tourists in search of high-end purchases from UK stores will show retailers and those employed by them very little loyalty if there is ample incentive to shop elsewhere. Scottish Enterprise estimates that the tourist industry in Scotland is made up of 15,000 companies employing 218,000 people. That is 15,000 companies and 218,000 people whose businesses and jobs could be affected as a consequence of tourists choosing to shop and visit elsewhere. For my local area and region surrounding the constituency, that is close to 30,000 people. The ripple effect of this decision to leave the VAT retail export scheme should not be understated. Tourists have come to the UK in search of retail purchases and, for the duration of their stay, let us not forget, they experience, visit and, most importantly for our debate today, buy so much more. We will lose their business to other destinations that continue to offer VAT-free shopping.
There are so many whose livelihoods depend on the distinctiveness and renown that come from being branded with the label “Made in Scotland”, the inspiration, flavour, taste or beauty of which cannot be found anywhere else in the world. These are businesses and jobs that depend heavily on the tourist trade. They have had their businesses decimated by covid-19, and they are relying on a strong rebound in tourist travel out of this pandemic for their very survival. So we should and must do everything we can to encourage tourism. Too many businesses and too many jobs in fashion, retail and further afield are at risk if we fail to do so.
I am sure that every Member of the House would want the UK to have a fair and dynamic tax system that responds to the needs of UK citizens and reflects the economic circumstances of the time. In order to achieve that, our tax regulations must evolve and adapt, supporting society’s wider objectives and strengthening our local and national finances.
It is impossible not to recognise the enormous changes that have taken place in UK society over the past year. Even if we were to set aside the impact of the pandemic, in the hope that we will soon be able to return to what used to be normal life, the nature of the UK’s place in the world has changed—as has the way we interact with our global friends and partners. The removal of the VAT retail export scheme is a recognition of that change. We have left the EU and its customs union, and now find ourselves in a position to re-evaluate how we choose to apply taxes and duties to consumers engaging in international travel. We have the chance to treat people from different countries in the world equally, with no inherent tax status attached to being an EU visitor to the UK, compared with being a visitor from anywhere else.
A fair tax system should not allow wealthy international travellers relief from local taxes, as if they simply arrive, make purchases and leave the UK again without any other interaction with our economy. Those visitors benefit from a vibrant and thriving UK economy, our infrastructure and our connectivity, and our economy relies on everyone paying their share of tax. We do not give VAT refunds for hotel rooms, meals or theatre tickets, so why should a handbag or new coat be treated any differently? Consumer goods that are purchased in the UK should be subject to normal UK tax rules, and that should apply regardless of the country in which the purchaser happens to pay their income tax.
That is not to say that people are not welcome to come and spend their money here in the UK. We have some outstanding retail opportunities, and I hope that many people from around the world will visit this country again, once it is safe to do so. But it is not unreasonable to expect those visitors to pay a small amount in the process. It is also the case that, even for those who did use VAT RES, once the administration costs had been included, the savings accounted for less than 6% of the total trip costs on average. Given the wealth of those using the scheme, it is highly unlikely that the existing scheme affected their decision to travel to or shop in the UK. In fact, the USA, which has no countrywide VAT RES scheme, is the top country outside Asia on China’s most-visited list, ahead of any European countries that do have tax-free shopping.
International travel and high-end retail are luxuries, and it is wrong to deprive UK taxpayers in places such as Penistone and Stocksbridge to benefit international travellers. Preventing a loss to our tax base to the tune of £1.4 billion will help us to spread the benefits of international travel across the whole UK, instead of, as at present, concentrating it in London and the south-east.
On a final note, I am pleased that this statutory instrument provides duty-free sales for UK residents visiting the EU, for the first time in 20 years. The UK travel industry has suffered enormously over the past year, and this measure will support regional airports and ports across the country. Many more UK residents travel to EU than non-EU destinations in normal times, so the changes to duty free should significantly benefit local economies as well as, of course, consumers.
The regulations implemented by this statutory instrument are fair to the UK taxpayer, fair to travellers and fair to consumers, and as fairness should be at the heart of our tax system, I am pleased to support it.
The first casualty of covid was aviation. That saw the collapse of Flybe, the UK Government’s supine response to fire and re-hire practices, and other significant job losses. Whilst Edinburgh airport sits in the constituency of the hon. Member for Edinburgh West (Christine Jardine), I have been supporting a number of my constituents in Kirkcaldy and Cowdenbeath who work at our national airport just across the Forth. They are airline pilots, cabin crew, ground staff, hospitality staff and facility staff. I have also been supporting Edinburgh airport’s chief executive, Gordon Dewar, and his team through letter writing, parliamentary questions, speaking in debates and joining the all-party parliamentary group. I have met twice with the aviation Minister, the Under-Secretary of State for Transport, the hon. Member for Witney (Robert Courts): in October and again in January this year. We have spoken about the need for a comprehensive aviation recovery strategy and why that is absolutely vital to the sector and to my constituents. Those discussions included, but were not limited to, the changes being made to airside sales. In all this time, I have not had a meaningful answer to any of my questions and concerns, or indeed those of the Edinburgh airport leadership team.
Given this sorry tale, and the absence of any strategy coming forward from the UK Government, it is hard to express the alarm, dismay, disbelief and anger when it emerged during the pandemic and just before the Brexit chaos that the UK Government planned to entirely remove VAT exemption on all airside sales, save for alcohol and tobacco. In tandem with that, the decision to abolish VAT RES for high-street sales was another significant blow.
This is at a time when we should be looking to strengthen and rebuild our economy, and plan for a recovery of tourism and related sectors. This decision will have an obvious and substantial negative impact on all the above. For example, at Edinburgh airport, the loss of VAT exemption for airside sales will result in over £7.6 million in lost revenue and place hundreds of further jobs in peril. It will place at risk a further £3 million of revenue from retail, fashion and other specialist shops. This is job-sustaining revenue and it cannot and will not be compensated by any stretch through duty-free liquor and tobacco.
This would have a considerable financial and economic impact at the best of times, but at the time of covid it threatens the very survival of the aviation industry and will cause untold damage in the wider economy, including job losses and slower economic recovery. That will be across these islands, not just in Scotland, but aviation enables much of Scotland’s economy, from tourism, business and education to culture and research. As Gordon Dewar of Edinburgh airport commented, aviation makes that possible, but we are
“not too big to fail.”
Brexit was an ill thought-out and massively damaging policy, seeing legislation such as this being implemented at the worst possible time for affected sectors. These intertwined sectors are already in survival mode. The hon. Member for South Ribble (Katherine Fletcher) may make light of the return of the booze cruise, but it is nothing to be celebrated when it is being paid for on the back of Scottish jobs and jobs across these islands, and the rather parochial view of the hon. Member for Dover (Mrs Elphicke) on this change and her appeal to such a narrow audience completely ignores that pernicious human impact beyond her back garden.
The creativity of contributions from the Government’s virtual Benches cannot camouflage the damage this will inflict. Brexit is an unmitigated disaster and the UK Government clearly care not a jot for Scotland’s wishes or our economic potential. This is but one of the compelling reasons why Scotland will very soon vote for independence and join the world.
It is a pleasure to follow the hon. Member for Kirkcaldy and Cowdenbeath (Neale Hanvey), and I share the northern sentiments of my hon. Friend the Member for South Ribble (Katherine Fletcher).
It is a bit cruel debate to be talking about holidays and airports and duty free while we are still unable to enjoy all those things, but as we begin to look beyond the pandemic and progressively reopen our borders to travellers, these measures will ensure fairness between travellers to EU and non-EU countries. Since 1 January, for the first time in over 20 years, duty-free goods are available to be purchased by all passengers at ports, airports and international rail stations, as well as on board ships, aircraft and trains on any international route.
It goes without saying that these changes will hugely benefit regional airports such as Leeds and Newcastle as they serve mostly EU destinations, but, unfortunately, Teesside airport will not be benefiting just yet. After years of under-investment and neglect by our local Labour councils in the Tees valley, five years ago Teesside airport was earmarked for closure; in fact, it was due to close this year. Most of our flights had stopped, leaving only a business connection to Amsterdam, and our airport became easyJet’s training ground, rather than a runway for holidaymakers.
Because of Labour’s complete lack of interest in this regional asset, there is not duty-free shopping at Teesside airport any more. However, we do have plans for change. The Tees Mayor, Ben Houchen, honoured his pledge to the people of Teesside and saved Teesside airport. He has since invested in turning it around—so much so that he was criticised recently by Labour’s candidate for Mayor, who said that
“the Mayor spends far too much time at the airport spending huge amounts of investment there, trying to bring jobs there”,
which is quite an odd line of attack.
From just one flight to Amsterdam, we are now flying back to holiday destinations such as Alicante, Bulgaria and Majorca. Soon, following the investment and improvement that Ben is putting into the airport facilities, we will see the return of duty free at Teesside airport too, so that holidaymakers in the UK can gain from this travel must. Thanks to this Government, they will see the real benefits of duty free. It is great to see that the changes that are an essential part of the post-Brexit VAT framework were put in place with minimal infrastructure changes and at minimal cost. I am also pleased to see that the UK has adopted one of the most generous alcohol allowances in the world for residents returning home. The booze allowance that Teessiders can now bring home has been quadrupled, allowing UK residents to save up to £120 of UK duty. Of course, this also applies to anyone travelling back to the UK, not just those outside the EU. That is something I will definitely enjoy, once we are able to travel again.
I understand the concerns that Members have about VAT RES, but I disagree with them. It was a hugely expensive scheme that really only benefited wealthy areas of the UK. No one shopping on the high streets in Redcar or Marske would benefit from it. Extending it to the EU instead of removing it completely would have cost us £1.4 billion every year, and that is why most visitors did not even use it. I am sure that my constituents and the constituents of many across the House would rather see that £1.4 billion spent on business rate reductions for coastal towns; on more investment in communities such as Eston, South Bank and Grangetown; and on further targeted measures to support our high streets.
Thanks to the measures we are debating today, we can make duty free great again, we can get boozing done and we can target measures on our high streets to make them more strong and stable. I fully support these measures and look forward to my constituents in Redcar and Cleveland benefiting from them at Teesside airport soon.
The decision to scrap tax-free shopping for overseas visitors to the UK is wrongheaded. It will cause significant damage, is completely unnecessary and should be reversed. The abolition of VAT RES has caused the Scottish Chambers of Commerce, the Scottish Retail Consortium and others to express alarm and concern. At a time when businesses are struggling to stay afloat and save jobs, and when airports face unprecedented challenges, to hit duty-free shopping is inexplicable. Duty-free shopping for visitors to the UK pays for wider operations in airports and helps sustain our city centre high streets, which are already under great pressure.
This move contradicts the findings of the Government’s own consultation and is truly bewildering. As the covid pandemic leaves our airports beleaguered, tax-free sales for overseas visitors gives them millions of pounds every year in revenue, allowing re-investment in their businesses, which supports the wider economy. Tax-free retail sales can account for as much as 40% of the revenue in some regional airports, and for Glasgow airport the risk here is a loss of revenue of £8.6 million and an estimated 170 retail jobs. How will that help our airports recover from the damage inflicted on them by covid-19? We already know that due to covid-19 we are expected to lose about 600 routes from airports across the UK, but the biggest impact will be felt by regional airports.
So this move is short-sighted and bewildering, but its consequences will be far reaching. The Scottish Government were not even consulted on this decision, despite the impact it will have on the wider Scottish economy. As we have heard, this change leaves the UK as the only European country not to provide tax-free shopping schemes to encourage tourism, putting Scotland and the rest of the UK at a distinct disadvantage, as we see the EU exploring even now how duty-free shopping can be developed to aid recovery. The Association of International Retail has described this measure as “devastating”, saying that it would lead to the loss of tens of thousands of tourism and retail jobs right across the UK, while the other EU capital cities would be
“rubbing their hands with glee at this self-inflicted wound”.
The chief executive of Mulberry has also warned that this move will have
“a material impact on jobs and manufacturing”.
Despite what we have heard today, the UK Government have already admitted that this move will lead to fewer tourists visiting the UK from overseas. These visitors do not just shop: they eat out; go to museums and the theatre; stay in hotels; and travel across Scotland and the rest of the UK. The risk is not just to retail businesses, although that is significant—the risk is also to major tourist destinations through the knock-on effects on the hospitality industry, suppliers and manufacturers of goods throughout the UK. Have these businesses not suffered enough during these times without the UK Government piling on greater pressure? This measure is economically illiterate at this time, and I urge the Minister to reverse it for the sake of our jobs and the wider economy.
I very much welcome these three measures on duty-free changes and travellers’ allowances.
First, on the return of duty-free, when, a few years ago, I was asked by The Sun newspaper to come up with some ideas for any possible benefits of Brexit, the return of duty-free was one of them, and it got widespread acclaim at the time. I mentioned the huge national groan 20 years ago when it was abolished. Tony Blair tried to stop it being scrapped but failed because of single market rules. I declare an interest as someone who has used it when I visited friends and family around the EU and would buy a bottle of duty-free whisky on the way out. It is a tax break that may not be that economically efficient on traditional measures, but is really popular and great fun. It is a tax break for the many, not the few. The Treasury should use not a benefit-cost ratio, as it normally does, but a fun-cost ratio. It is very popular with the public. As we have heard, booze cruises will be returning when we are allowed to have them. I think that will be welcomed up and down the nation, as well as in regional airports, which will benefit massively.
Secondly, on the quadrupling of the alcohol allowance, I, for one, thought the old allowances were quite mean with just one case of wine, so I certainly welcome having two cases. I think most of the British public would also welcome that. As somebody who is favour of free trade, low tariffs and low allowances, I absolutely support a move in that direction.
Thirdly, on the retail export scheme, which is the most controversial issue and the reason the SNP is opposing these measures, I support abolishing for two reasons: first, it is not good value; and secondly, it is not fair. Basically, it is a tax break for wealthy foreigners coming to do shopping for high-value goods in the UK, but it is not good value because it is actually not that widely used. Fewer than 10% of non-EU visitors currently use it. There is a good reason for that: the fees for using it charged by the shops’ administrators are so high that often 70% of the refund ends up going to them. It is not surprising, therefore, that the shops’ administrators have launched a rearguard action to try to stop its abolition. Because it is used so limitedly, it reduces travel costs by only about 6%, and that is not enough to make the difference for most people as to whether they will travel or not travel to buy something. Indeed, research by Her Majesty’s Revenue and Customs has shown that two thirds of visitors would have bought the goods anyway.
There is also—this has not been mentioned by SNP and Labour Members—the opportunity cost. The Government have to either extend the scheme to the whole EU or abolish it outright. Keeping it would cost the Government £1.4 billion. That is £1.4 billion the Government could do other things with. There are far better ways to save jobs, create jobs, help the high street and help retail than to give a tax break to wealthy tourists buying high-value goods. For example, the Government are currently looking at the reform of business rates—a key issue for high streets up and down the country—and £1.4 billion could go a very long way towards helping all shops, not just a few that specialise in this one area. Lots of different things could be done with £1.4 billion. It really is a huge sum of money, and giving tax breaks like this is not an efficient way of using it; we can do far more good with it in other ways.
Secondly, as I said, I do not support the scheme because it is not fair. It has always struck me as quite bizarre that wealthy visitors coming to Scotland to buy jewellery or coats, or coming to central London to buy computers, do not have to pay tax while British people buying the same goods do have to pay it. Why should wealthy travellers get a 20% tax break? They are using the resources and infrastructure in the UK just as much as anyone else. If I go to some other country, I certainly do not expect tax breaks on buying expensive goods there. I think it is inexplicable to most British people that the taxes they have to pay are used to subsidise such tax breaks. It is particularly ironic that the Scottish National party and Labour are opposed to this. They are meant to be the parties of tax breaks for the many, not the few; here, they have become the parties of tax breaks for the few wealthy people. For all those reasons, I totally support the scrapping of the retail export scheme.
Allow me to begin by saying how utterly bizarre I found some of the earlier contributions to the debate. It was as if the impact of these changes was all a bit of a jolly lark, extending no further than the ability to stagger off the return leg of a cross-channel booze cruise armed with nothing more than a blue Brexit passport and a clinking tote bag of bottles to take home. The businesses that understand the issues at stake, and those who work in them whose jobs are at risk due to this change, will, I am certain, be looking on aghast.
Tax-free shopping has played a major role in attracting visitors to our shores ahead of other potential tourist destinations. It supports a very large number of jobs in retail and in the manufacture and production of high-quality and luxury products and produce. Its removal will cost jobs and harm direct and indirect tax revenues—all benefits that will simply be exported offshore.
That affects our airports, which, despite the economic support currently on offer, remain under the cosh as a result of the pandemic. Airlines UK estimates that, without Government support, UK airports are set to lose around 600 routes as a result of the pandemic, a situation that will only be compounded by the effect of these changes on their revenues. Amid that, terminal sales and tax-free shopping, already a key component of the economic health of our airports, will take on heightened significance.
My constituency includes Aberdeen airport, which is of massive strategic importance, supporting the activities of the oil and gas sector. The airport’s operators estimate that these changes will risk a loss in revenue for the airport of £1.6 million annually and put at risk some 45 retail jobs. Retail sales account for up to 40% of revenues in some regional airports—revenues that obviously support jobs but are also there to support investment in facilities and in incentivising airlines to open up connections to new destinations. Without the ability to earn those revenues, there will be fewer passengers, fewer routes, fewer jobs and fewer opportunities for wider economic development outside the perimeter fences of our airports, with growth hindered in the regions they serve and, in consequence, lower tax revenues overall for the Government.
As has been said, tax-free shopping is also hugely important as a driver for tourism. My hon. Friend the Member for North Ayrshire and Arran (Patricia Gibson) set out succinctly the benefits to all parts of the economy from tourism activity and the way that the spend is spread around when tourists are here. The Office for Budget Responsibility estimates that of the 1.2 million visitors who benefited from tax-free shopping in 2019, approximately 20,000 to 30,000 fewer will visit Great Britain every year because of this change in policy, and it is an absolute given that those who do will spend less. All told, the outcome of these changes puts at risk an estimated 40,000 jobs and over £1 billion-worth of investment.
David Lonsdale, the director of the Scottish Retail Consortium, who was mentioned earlier by my hon. Friend the Member for Paisley and Renfrewshire North (Gavin Newlands), has been clear on this. He said:
“This decision would leave the UK as the only European country not to provide a tax-free shopping scheme to encourage tourism. There is a good reason no other European nation has taken this step, and we urge swift reconsideration.”
While some of us cannot believe the UK Government’s stupidity here, others cannot believe their luck, and it is little wonder that the French financial newspaper Les Echos has argued that the UK is in danger of shooting itself in the foot.
The UK Government need to reverse the abolition of the airside VAT exemption and allow the introduction of arrivals duty-free. That would allow the industry to restore some profitability more quickly and avoid the competitive loss to foreign airports. Most airports in other parts of the world have been doing arrivals duty-free for up to two decades. Crucially, we must retain the VAT retail export scheme.
There have been precious few Brexit benefits to date, and of those that were promised, very few have been delivered. It seems ridiculous that instead of banking some of the very few potential benefits, including duty-free, the UK Government seem hellbent on exporting them instead. It is clear that the very real concerns raised by business across a range of sectors have not been adequately addressed or heard. The Treasury must reconsider.
It is an honour to speak in this debate. Although I agree that the statutory instrument does not have the snappiest title—Travellers’ Allowances and Miscellaneous Provisions (EU Exit) Regulations 2020—we should not let that hide the importance of this useful piece of legislation. As a former finance director with the unenviable joy of filling out VAT retail export scheme paperwork, I can say that, had I still been sitting in my office, I would be rejoicing at this statutory instrument as it scraps the necessity, once and for all, to fill in such declaration forms.
Why is the SI of such benefit? Well, it is another benefit of leaving the European Union. Now that we have control of our laws and our regulations, we can set out our own policy and regulation around VAT and how we administer it. In my view, it is another piece of red tape and bureaucracy that we can cope without. Those red and cream VAT retail export papers—the 407 form—either have to be extended to all countries in the EU, as we fall onto World Trade Organisation rules, or we can choose to remove the scheme altogether.
Extending the scheme would cost us £1.4 billion a year and for what benefit? None, really. We can quite rightly remove the scheme altogether. There is no real advantage to subsidising customers shopping in the UK from outside the EU and reimbursing them from the VAT on the goods that they purchase. The scheme disproportionately affects central London and places such as Bicester Village, with their high concentration of non-EU customers participating in retail shopping. Let us be honest, many customers do not even use the scheme, let alone know about it, and they certainly do not visit the UK to take advantage of reclaiming VAT. As such, I entirely welcome the move and say let it be a useful boost to the Treasury.
Furthermore, for the estimated 67 million people travelling to the EU, there is the benefit that, for the first time in 20 years, we are providing duty-free sales to UK residents. As my hon. Friend the Member for South Cambridgeshire (Anthony Browne) has said, it is another benefit of Brexit. I agree with his assessment that bringing back duty free has something of the fun factor about it, and it will be enthusiastically met by the public.
Not only is this a welcome move for people travelling to the EU, but it is a huge boost for regional airports, which will now be able to offer duty free to their passengers. Like so many airports, Norwich International —it is not in my constituency, but, at a distance of 35 miles away, it is my nearest airport—has suffered so much, and I can see it welcoming this initiative entirely. This scheme is also extended to ports and international train stations.
Finally, our inbound alcohol allowances are now one of the most generous in the world, with a quadrupling of the entitlement that passengers returning from anywhere in the world can bring into the UK.
As we leave the EU, the newspapers may like to tell us of the bumps in the road that need straightening out. Well, here is a statutory instrument that adds benefit, simplification and removes bureaucracy, and I, for one, will not miss the pink and cream forms. It is a welcome move indeed.
It is a pleasure to follow the hon. Member for North Norfolk (Duncan Baker). My desire to speak in this debate was driven not only by my serious concerns about the immediate impact of the measures on our airports, our retail sector and our tourist industry, but by my concern about the potential for manipulation into yet another grievance strategy by the Scottish National party and all separatists, as part of their continual campaign to undermine the United Kingdom—something that we have, sadly, seen amply demonstrated in the debate.
I ask the Government to think again, revisit this decision and re-examine the detrimental impact that it could have on our economy. Tourism and the individuals it brings here are a major contributor to the economy of the UK and each of its constituent parts, collectively and individually. Visitors who take advantage contribute around £6 billion a year to our national coffers, which are being dipped into heavily at the moment. More than that, it protects thousands of jobs in our tourist centres and elsewhere.
Attracting high-spending overseas tourists is an economic strategy that is internationally recognised and has worked for us. It has kept our cities on an equal footing with international competitors such as Paris, Milan and Madrid. By removing this incentive, we would be boosting them, to the detriment of our own cities, and detracting from the UK’s international appeal. We would also be adding yet another blow to our hard-hit retail sector at a time when it is already reeling. Experts have warned that this measure would cost my city of Edinburgh an annual loss of £92 million. Those are the figures from the Centre for Economics and Business Research, which also estimates that it would cost Manchester £60 million, Liverpool £32 million and Leeds £18 million, at a time when all our cities can least afford it.
The impact will be felt initially by tourism, retail and airports, but experts have warned that it will gradually spill out and affect other sectors. Hospitality, which is already hard hit, will suffer as tourists choose other countries and other cities in which to spend their money in restaurants, cafés and bars. Manufacturing, too, will feel the pinch. Tourism industry bodies have warned that as many as 70,000 jobs are in immediate jeopardy throughout the United Kingdom, while it has been estimated that the broader damage could affect as many as 138,000 jobs, at a time when unemployment in this country is already rising at an unexpectedly rapid rate.
Our country’s retail, hospitality, events and entertainment sectors, and just about every sector imaginable, are struggling to cope with the impact of a crisis that was beyond our control. The pandemic was visited on us; it was not due to any choice we made. This change would be self-inflicted damage. It would undermine vital industries and cost jobs. I appeal to the Government to think again about the danger inherent in this statutory instrument, the benefits to the country that would be lost and the damage it could do to our future.
The hon. Member for Edinburgh West (Christine Jardine) gave a rather remarkable speech, first suggesting that the SNP was grievance-mongering, only then to agree with the annulment motion we have tabled. While some of us on the SNP Benches have become used to these dreary tirades against the cause of independence and that of the SNP, what we are doing today is trying to protect jobs in constituencies like hers. I also want to correct the record: I am sure that my hon. Friend the Member for Kirkcaldy and Cowdenbeath (Neale Hanvey) inadvertently misled the House when he suggested that Edinburgh airport was the national airport—he might be unaware of Glasgow airport being the best, but that is perhaps a childish point.
I am grateful to my hon. Friend the Member for Paisley and Renfrewshire North (Gavin Newlands) for bringing this annulment motion to the House. The covid-19 pandemic has had a huge impact on all industries and sectors across the UK. However, the tourism and travel industry has been particularly badly hit. The albeit necessary travel restrictions have affected those working for airlines and in airports. Last week I spoke to one of my Baillieston constituents, Sharon Erentz, who works at Glasgow airport. We spoke about how the pandemic will affect air travel for many months—indeed, years—to come, with estimates that holiday makers will be cautious about booking their next holiday abroad for some time.
For many travellers, VAT-free shopping is part of the travel and airport experience. Many people who are travelling arrive at the airport early to buy holiday gifts—perfumes, alcohol and clothes—and it was clear from speaking to Sharon that many customers wait all year round to shop in the airport and take advantage of the tax relief on aspects of the retail.
Additionally, many people travelling for business regularly buy products exclusively in the airport, choosing the VAT prices over many other shops. These are often high-value customers, sometimes spending several thousand pounds at once. One of the things the hon. Member for South Cambridgeshire (Anthony Browne) said that struck me was that somehow this is about tax breaks. For a Government who like to talk about jobs, jobs, jobs, it rather seems that the Minister will overlook the jobs of many constituents such as Sharon, who I represent.
The proposals mean that the products sold in the airport would be the same price as on the high street. Many people have expressed worry over the fact that if there were no VAT-free shopping, many of their usual customers would not buy from the airport shops and stalls anymore. If the airport does not have competitive prices, there is indeed no incentive for holidaymakers to save up to spend that money at the airport. Airline passenger revenue is estimated to plunge by about $314 billion in total—or 55%—from 2019 levels according to the International Air Transport Association. Job losses in the travel industry could reach more than 100 million this year according to analysis by the World Travel and Tourism Council.
My hon. Friend the Member for Paisley and Renfrewshire North has repeatedly questioned the UK Government over the decision to scrap the VAT retail export scheme and the airside extra-statutory concession scheme. He has highlighted that, for Glasgow, the airside concession, which is now to be scrapped, is worth £8.6 million in revenue. It also means that 170 retail jobs will be put at risk at a time when between 1,500 and 2,000 of the 5,000 jobs based at Glasgow airport have either gone or are under threat. Across the UK, it is estimated that the scrapping of both schemes will cause £1.5 billion-worth of losses. When the travel and tourism industry is on its knees, it is completely irresponsible to cut one of the few remaining income streams that offers hope to so many airports.
It is vital that the UK Government are doing all they can to support the sectors most affected by the covid-19 pandemic. With the necessary restrictions, the travel and tourism industry has suffered, and with many people now facing an uncertain future and financial security, the UK Government must act. Ending VAT-free shopping adds further concern for many people, such as my constituent Sharon, who are working at airports and already facing an uncertain future ahead. I very much hope that the annulment motion is successful this evening. I will be voting for it to save those jobs that I am proud to support. Most importantly, I hope that all other Members vote to save those jobs as well.
I will focus my remarks on the abolition of VAT RES—the VAT retail export scheme. It has potential implications for my constituency, which is a major international hub of shopping and tourism, and also for rest of the country, since so many manufacturing jobs in luxury goods are scattered throughout the country, including in the north-east, the south-west and Scotland.
Let me just give a few numbers. Some 16 million non-EU international visitors come to the UK in normal times, although clearly not this year. They spend more than £17 billion, of which only £2.5 billion approximately is in tax-free shopping. I am concerned that if we disincentivise these visitors from coming to the UK, we materially affect other areas of our economy, and potentially also the Treasury’s tax take. For instance, these visitors stay in hotels and use restaurants, and the Treasury could lose the VAT on that expenditure. My concern is that these shoppers, who are a very distinct group of people, are highly mobile. The risk is that if we are no longer competitive, and we are the only European country not offering tax-free shopping, they will simply go to Paris or Milan. I am also concerned about the effect that it will have on my high streets, which are clearly already suffering from coronavirus and online shopping.
This measure has already taken effect as of 1 January. I ask the Minister that we continue to review the effect of this measure and that we do a full impact assessment that not only includes the top line, but looks at all the effects on the economy—the loss of VAT, the potential loss of business rates, and the potential effect if retail or manufacturing jobs go. I hope, from the bottom of my heart, that these things do not happen, but I ask the Minister to monitor the situation, and if the data and evidence do not look good, we should be prepared to revisit the decision.
It is a pleasure to follow my hon. Friend the Member for Kensington (Felicity Buchan), who has been a great champion on this issue for her local constituency for some time, and it has been a pleasure to work with her on this. I also agree with the remarks of the hon. Member for Edinburgh West (Christine Jardine). Sadly, this is another situation where the separatists in Parliament make a point that is very important to their local area and local jobs—I agree with the hon. Member for Glasgow East (David Linden) about that—but every single SNP speech also had to include reference to separation. This is far more important than that. It is important to jobs here in Moray, as it is in other parts of Scotland and the United Kingdom, and I think it demeans the argument being put forward by SNP Members that they had to stoop to yet more divisive topics, such as independence, in this important debate.
I come at this issue slightly differently from other hon. Members who have contributed today. I do not have an airport in my constituency. I do not have a port where ferries are coming in, but I have more Scotch whisky distilleries and visitor centres than any other constituency in Scotland. It is also home to producers such as Johnstons woollen mill, which makes outstanding, high-quality produce that is very much sought after by people affected by this statutory instrument. I met Stephen Rankin from Gordon & MacPhail and Simon Cotton from Johnstons woollen mill to hear directly what it would mean for these local businesses.
Just as an example, Gordon & MacPhail is part of the Walpole Group, and earlier today, I got some statistics from Walpole about what this would mean. It estimates that 40,000 jobs across retail, hospitality and manufacturing could be lost as a direct result of this decision. It says that the impact will not just be lost revenue and jobs, but, critically, lost investment. It goes on to say that from 15 brands that it is aware of, over £1 billion will not now be invested in the United Kingdom. That is new stores, expanding factories and distribution centres that will now be developed outside the UK because of this instrument.
Crucially, I want to look at the impact that this has here in Moray on local employers and crucial jobs. Simon Cotton made the point on behalf of Johnstons woollen mill that VAT-free shopping is responsible for over 50% of the company’s revenue in its London and Edinburgh stores. It believes that at least two thirds of that will be lost, which would make those stores no longer viable. He went on to say that, overall, VAT-free shopping accounts for over a third of its retail as well as being critical to the customers that it sells to at a wholesale level. He said—and this point really hits home to me—that, generally speaking, every job lost in retail is matched by two to three jobs lost in manufacturing. That is two to three jobs lost in the local Elgin mill here in Moray for every job lost in the company’s Edinburgh or London stores. That is why I felt I had to speak up for those jobs in this debate.
I agree with my hon. Friend the Member for Kensington: we have to look at the impact of this decision, which took effect from 1 January. The new measures are already in place, so I hope the Treasury will take cognisance of their impact on companies such as Gordon & MacPhail, Johnstons, a number of distilleries and visitor centres here in Moray, and other high-end producers throughout the country, and of the effect on those individual companies and, therefore, on the jobs that they supply.
I represent Moray, and for me this is not a party issue; it is a local issue and I am a local representative. For the jobs at risk as a result of this SI, I shall vote to annul it because that is the right thing to do to represent my constituents and stand up for their concerns and those of employers in my area. If the vote is not successful, I hope the Government will at least look again at the impact of the decision.
Britain’s departure from the European Union brings with it the freedom to reintroduce duty-free sales and make other tax changes that will deliver Brexit benefits to British tourists. Such gains have been enacted by the Travellers’ Allowances and Miscellaneous Provisions (EU Exit) Regulations 2020, which also introduced crucial changes to the VAT and excise rules for passengers following the transition period.
The new rules form a carefully considered package of measures that was introduced following a wide-ranging consultation. The changes take into consideration the Government’s aim of minimising disruption at the border, along with World Trade Organisation commitments that require the Government to align the treatment of passengers travelling to and from the EU and non-EU countries.
The provisions in the SI ensure the smooth flow of passengers entering Great Britain by reducing the need for them to stop at the border to declare goods that they have purchased. My hon. Friend the Member for North Norfolk (Duncan Baker) elaborated on how, from his personal experience, the measure removes bureaucracy. Without the instrument, EU and non-EU passengers would be treated differently, traveller flow at the border would be disrupted and the UK would breach its international obligations under World Trade Organisation law.
The measures I shall outline will have a hugely positive impact on UK travellers for a number of reasons. As my hon. Friend the Member for South Ribble (Katherine Fletcher) said, for the first time in more than two decades, the tens of millions of UK passengers who visit the EU every year—in non-pandemic times—will be able to enjoy duty-free sales. For example, with UK excise duty no longer due, a 1 litre bottle of Scotch could be around £11.50 cheaper.
In addition, we have quadrupled the alcohol allowance for passengers arriving in Great Britain, making it one of the most generous in the world. Under the new rules, passengers will be allowed to bring into Great Britain three crates of beer, two cases of wine and one case of champagne for personal use without having to pay the relevant taxes. This represents an excise duty saving of up to £120. My hon. Friend the Member for Dover (Mrs Elphicke) praised of the significance of such measures to her constituency, which has a port for travel straight to the EU.
I recognise the concerns expressed by the hon. Members for Paisley and Renfrewshire North (Gavin Newlands) and for Gordon (Richard Thomson), along with others, about the ending of the VAT retail export scheme and the removal of tax-free airside sales. Although the latter policy change on tax-free airside sales is not actually part of this instrument, let me explain our thinking behind the decisions.
In simple terms, the maintenance of the VAT RES and tax-free airside sales after the end of the transition period was never an option for the Government. In reality, the choice we faced was between extending the schemes to all EU travellers or removing them both completely, because the World Trade Organisation rules specify that goods bound for different destinations must be treated the same. However, because EU visitors have never benefited from the VAT RES and still spend in UK shops without it, to extend it now would present a large dead-weight loss, and in effect the Government would be subsidising the shopping of EU visitors. I am sure hon. Members would agree that this would be an unwise use of taxpayers’ hard-earned cash.
My hon. Friend the Member for South Cambridgeshire (Anthony Browne) set out clearly and concisely why this was not a fair and efficient use of taxpayers’ money, and I thank him for making such a well-argued case. In addition, data and evidence submitted as part of the Government’s consultation demonstrated that the VAT RES disproportionately benefited London and the south-east of England. In fact, around 90% of sales were made in London and Bicester Village in Oxfordshire. My hon. Friend the Member for Penistone and Stocksbridge (Miriam Cates) made the excellent point that other regions and, in particular, smaller high streets did not appear to gain as much, if at all.
I take the point made by my hon. Friend the Member for Kensington (Felicity Buchan). She and I have had several discussions on this issue and I have also had extensive representations from my hon. Friend the Member for Moray (Douglas Ross). However, they will both know that the Treasury disagrees with their assessments. The Office for Budget Responsibility estimates that the withdrawal of the VAT RES will result in a significant direct Exchequer saving of £1.84 billion in just over five years. In addition, the OBR estimates that the withdrawal of tax-free airside sales will result in a saving of £780 million over the same period.
I thank the hon. Member for his representation. That information can be found in the tax impact information note.
I assure hon. Members that the Treasury will continue to keep these measures and their impacts under review. Let me turn more specifically to the prayer motion tabled against this instrument. I fully recognise the desire of hon. Members to champion Britain’s retail and tourism sectors. I share the same desire to see those important industries prosper. This package of measures will boost all airports, including those such as Edinburgh, Cardiff and Newcastle. These hubs primarily deal in travel to the EU, and so could make only limited use of airside tax-free sales anyway. They will now stand to gain significantly from duty-free sales.
As I have demonstrated, the measures contained in this legislation constitute a more equitable distribution of benefits to both consumers and airports across Great Britain. To remove this legislation would spell an end to these significant gains. Such a move could also cause disruption at the UK border by preventing the smooth flow of passengers, as those coming in from the EU and non-EU countries would be treated differently. Let me also remind hon. Members that the introduction of duty-free and the extension of personal allowances are estimated to cost the Exchequer £890 million over five years. That money needs to be found from somewhere. I am sure hon. Members will agree that it is only correct that the savings generated from the withdrawal of both the VAT RES and airside tax-free shopping should be used to support a greater number of consumers and airports across Great Britain.
The hon. Members for Kirkcaldy and Cowdenbeath (Neale Hanvey) and for Ealing North (James Murray) raised the impact of these schemes on airport jobs specifically. The hon. Member for Ealing North also raised the late enactment of the legislation. I would say to him that he was not in this House when Labour Members wasted precious time during the transition period trying to frustrate and stop Brexit. Had they not done that, perhaps we would have been able to enact this sooner. I emphasise that the main impact on these businesses is the large drop in passenger numbers due to the pandemic—not to these schemes—which is why we have supported the aviation industry in the following ways. The airport and ground operation support scheme, announced on 24 November, will provide support for eligible businesses up to the equivalent of their business rate liabilities in the 2021 financial year. This is subject to certain conditions and a cap for claimants of £8 million. This is intended to help to reduce cash burn and put on lock shareholder and lender support. While this applies only to airports in England, it constitutes new spend for the Department for Transport, so Barnett consequentials will apply as standard. The Government also recognise the challenges the aviation sector is facing as it recovers from the impacts of covid-19. We have supported the sector throughout the pandemic and continue to do so.
The hon. Member for Edinburgh West (Christine Jardine) was right to ask about the potential impacts of this measure. HMRC research shows that in 2019, fewer than one in 10 non-EU visitors to the UK used the VAT RES. That is 1.2 million out of 60 million visitors. However, the claims in the Centre for Economics and Business Research report, where her figure of 138,000 jobs comes from, are based on the implausible assumption that the end of the scheme will cut non-EU visitor numbers by 4.96 million. That is simply not credible; it is four times as many people as currently use the scheme. Even the report’s more conservative analysis is underpinned by an assumption that non-EU visitors will reduce by 7.3% or 1.17 million, which is almost the total number of current users of the VAT RES scheme. It is unrealistic to assume that all current VAT RES users will cease to visit the UK.
I hope that I have been able to answer hon. Members’ many questions. I am delighted that we can use our new freedoms outside the EU as my hon. Friend the Member for Redcar (Jacob Young) comprehensively set out—that is, to achieve gains for local economies and passengers. As I mentioned, there is a significant cost to the Exchequer. However, this has been weighed against the revenue from the other changes that we are making. Together, these measures support our airports, benefit consumers and protect the taxpayer. For those reasons, I ask the House to reject the motion and support the Government’s approach.
I thank all Members for contributing to this afternoon’s debate, but I am afraid that the Minister’s response does not really cut it. The fact is that she has ignored both the airport and retail sectors. She has seemingly also ignored the lobbying of her own colleagues on the Conservative Benches. In fact, she has forced the Scottish Conservative leader to back an SNP motion in the House of Commons this evening. I hope that she and her colleagues in the Treasury will reflect on this short-sighted decision.
I listened to the shadow Minister, the hon. Member for Ealing North (James Murray), who made several good points, but I am really none the wiser as to whether the Opposition support the Government on this matter or whether they are going to vote to revoke the regulations. Perhaps we shall see in the next couple of minutes.
In conclusion, not many Members on the Tory Benches—other than the last two speakers—seem to get it. Some of the other contributions were incredibly whimsical in nature, talking about booze cruises, ferry discos and whatever. We are talking about people’s jobs. I am not talking about rich foreigners coming over here and getting money off. I am talking about the jobs that these schemes support, right here in our constituencies in the UK. To be honest, the less said about the incredibly unnecessary snide snipe from the hon. Member for Edinburgh West (Christine Jardine), the better. That was followed by the hon. Member for Moray (Douglas Ross), although he then went to largely agree with our proposal.
It has not been enough; the Minister has not been clear that any review into this situation will come quickly enough for the sector, and it is for that reason that we will have to push this to a vote.
The list of Members currently certified as eligible for a proxy vote, and of the Members nominated as their proxy, is published at the end of today’s debates.