The UK government has again defended its decision to withdraw the VAT Retail Export Scheme (VAT RES) and tax free extra-statutory concession (ESC) at airports.

TRBusiness launched a *prominent campaign last year against the move taken by HM Treasury and HM Revenue & Customs, before the schemes were ended at the start of this year.

Exchequer Secretary to the Treasury Kemi Badenoch issued a written reply to the local Member of Parliament of constituent and TRBusiness Co-owner Nigel Hardy in the wake of the shock announcement of Dixons Travel’s departure from airport retail.

Extracts from the Exchequer Secretary’s letter that TRBusiness is reproducing here read: “The government consulted widely on these changes [concerning the withdrawal of VAT RES and tax free airside sales]. This evidence was assessed alongside the fiscal and economic impacts and balanced against the policy objectives in this area.

‘A WIDER PACKAGE OF CHANGES’

“The withdrawal of the VAT RES and tax free airside sales are also part of a wider package of changes, with significant benefits for UK customers – the reintroduction of duty free sales for EU-bound passengers and the quadrupling of inbound allowances for alcohol.”

Dixons Travel decided to pull its 29 UK airport shops from operation due to the drop in passenger numbers linked to Covid-19 coupled with the impact caused by the axing of airside tax free shopping in the UK.

At the time, it said around 400 Dixons Travel workers would be offered roles within the Dixons Carphone Group. TRBusiness has reached out to Dixons Carphone for comment.

“The government recognises the challenging circumstances facing the travel retail sector as a result of Covid-19 and I commend Dixons Carphone’s efforts to ensure any colleagues affected by the proposed closure of Dixons Travel can find another role elsewhere in the business,” stated Badenoch in the letter.

“Firms experiencing difficulties due to the Covid-19 pandemic can draw upon the unprecedented package of measures announced by the Chancellor, including schemes to raise capital, flexibilities with tax liabilities and the extended furlough scheme.”

DIXONS MOVE ‘TIP OF THE ICEBERG’

Nigel Hardy, Co-owner and Joint Managing Director, TRBusiness responded: “Once again, I am bitterly disappointed with Kemi Badenoch’s apparent lack of empathy and understanding for the UK duty free industry.

“Dixons decision to withdraw from this retail channel is likely to be the tip of the iceberg and when other companies follow suit, it is highly improbable that 100% of those airport workers affected will be as lucky as their Dixons Travel counterparts in being provided with alternative employment with the same company outside of duty free.

“I feel that it is also highly improbable that those losing their jobs will find any solace and compensation in the fact that the UK Treasury is now offering a quadrupled inbound allowance for alcohol.”

The DF&TR industry lamented the government’s ‘hammer blow’ announcement in September last year to end tax free sales on non-excise duty free products at airports from January 2021 at a time when Covid-19 had already brought the industry to its knees.

As reported, the High Court (Divisional) Court and Court of Appeal (Civil Division) last month ruled against a joint challenge brought by Heathrow Airport, Dufry-owned World Duty Free and tax refund specialist Global Blue challenging the government’s abolition of tax free sales [to read a summary of the judgement in full, click here].

Among several arguments put forward by the claimants was the government’s failure to properly evaluate evidence related to the wider economic and fiscal impact stemming from the decision to abolish the ESC and VAT Res.

In a summary of the case put before Lord Justice Green and Mrs Justice Whipple, it was noted by the Court that ‘the approach taken by the government to evidence collection was justified and rational in the circumstances’.

It continued: “The government was entitled to conclude that given the large number of uncertainties and imponderables that existed any attempt at modelling or quantifying potential indirect economic and fiscal effects would be an exercise in uncertainty which could not generate reliable results.

“Nonetheless, the government recognised that there would be wider economic harm flowing from the decision and this, albeit unquantified, conclusion was taken into account and the claimant’s own evidence of wider economic effects was provided to the Chancellor so that it could also be taken into account when the ultimate decisions were being taken.”

*The ‘Keep tax-free sales at airports and the VAT Retail Export Scheme’ petition registered 12,664 signatures before closing on 29 April. The government issued a formal response on 16 December after the petition hit 10,000 responses. You can read the response in full by clicking here.