Industry keeps up pressure on UK to take advantage of arrivals duty free

By Luke Barras-hill |

Tax free on arrival shop at Oslo Gardermoen Airport. Source: Catchlight Fotostudio AS/Avinor.

The UK should introduce arrivals duty free and emulate a policy that has been ‘a proven recipe for success’ in other countries, according to the UK Travel Retail Forum (UKTRF).

Calls for the government to act on an opportunity afforded by its post-Brexit legislative powers to implement arrivals duty free at airports, ports and railway stations, have to date gone unanswered despite strong cross-party support for the policy.

As reported, the publication of research commissioned jointly by UKTRF and the European Travel Retail Confederation (ETRC) demonstrates that sales at airports in Europe have surged by up to 108% following the introduction of the mechanism.

Case studies on Norway and Switzerland within the research conducted by independent consultancy York Aviation reveals that the lift in sales on arrival to the country has allowed airports to invest in infrastructure and new routes, while offering lower prices to passengers.

Between 2005 and 2019, duty free sales for state-owned Norwegian operator Avinor rocketed 108%, ‘cementing their position as a source of income central to Avinor’s viability’, notes the report.

Nigel Keal, Chair, UKTRF: “Arrivals duty free is a policy that is wholly paid for by industry, and at absolute worst, cost neutral for Treasury.”

Supporting recovery efforts

At Oslo Gardermoen Airport, arrivals duty free takes a roughly 50% slice of all duty free income.

Meanwhile in Switzerland, sales from arrivals duty free increased by five percentage points in the five years to 2017 – from 22% in 2012 to 27% in 2017 – underpinning its growing importance to the commercial incomes of Swiss airports.

It has also spurred job creation, with the introduction of two arrivals stores at Zurich Airport resulting in 50 new jobs for residents.

Chair of the UKTRF Nigel Keal said: “These case studies provide a concrete demonstration of the economic benefits arrivals duty free shops can bring to both local communities and national economies.

“We appreciate that the government must make tough decisions on public spending, which is why we are urging the Chancellor to introduce policies that help the industry return to self-sufficiency. Arrivals duty free is a policy that is wholly paid for by industry, and at absolute worst, cost neutral for Treasury.”

“Both the York Aviation case studies show that the policy of arrivals duty free is a proven recipe for success. It is a low-risk, easy implementable way to support travel and the many UK businesses involved in travel retail in the difficult years and months ahead.”

At present, 65 countries including some EEA and Eastern European countries and practically all international travel hubs in Asia, the Middle East and Australasia, and several non-EU countries have arrivals duty free stores in place.

In response to a recent parliamentary question on the new studies tabled by senior Tory MP Sir Christopher Chope, Exchequer Secretary James Cartlidge claimed arrivals duty free stores ‘would place additional pressure on the public finances’.

The UKTRF maintains in a statement that separate research on the topic conducted last year reveals that income tax generated from new jobs, and increased corporation tax, would offset any loss of crown revenues in the UK, with predictions the policy could result in an additional £50 million for HM Treasury.

As reported, the Chair of the Future of Aviation Group of MPs and member for Gatwick Airport, Henry Smith, penned a public letter to the Chancellor in October calling on him to introduce arrivals duty free.

Co-signed by 43 influential parliamentarians including 1922 Committee Chair Sir Graham Brady and former minister Lord Vaizey, the letter read: “With our exit from the EU, the UK has a unique opportunity to drive retail sales higher than our European neighbours.”

A poll conducted by UKTRF earlier this year revealed more than half of Britons would welcome duty free at arrivals points of sale in the UK.

Case for VAT-free shopping mounts

Separately, UK Chancellor Jeremy Hunt has been under pressure in recent months from the industry, MPs and business leaders to reverse the axing of the VAT-free sales concession for retailers.

Mulberry’s Chief Executive Thierry Andretta told multimedia news agency PA recently that the move to end tax free shopping has meant a blow to its trading, notably at its Bond Street outlet, which previously used to welcome up to 50% of sales from tax free international shoppers – a figure that is now below 5%.

It has been claimed that the scrappage of VAT-RES will recoup the Treasury £2 billion per annum.

In a 7 December post, Euromonitor International Senior Consultant Alexander Göransson questioned the ‘missed opportunity’ for UK tourism.

“The UK has an extremely strong reputation as a shopping destination, as it is the home of renowned luxury brands such as Burberry and Mulberry, in addition to London’s iconic department stores such as Harrods and Selfridges,” he said.

“Pre-pandemic inbound shopping accounted for almost 25% of UK inbound tourism receipts, more than food and activities combined. The sector was driven heavily by two source markets, China and the Gulf States, between them accounting for almost 60% of tax free sales in 2019. The UK is less attractive as a shopping destination for US and European visitors, as prices are no cheaper than they are in their home countries.

“Due to Brexit, the UK could now potentially also offer duty free shopping to visitors from EU member states. With increasing numbers of foreign tourists incentivised to visit the UK, traditional VAT-paid retail should also benefit.

“Industry sources suggest an elasticity that for every GBP £1 that shopping tourists currently have to pay in VAT, GBP £2 is lost in overall inbound retail sales. This elasticity rises to GBP £3 for the key Chinese inbound market. Should the British pound remain weak in the longer term, it could also benefit the UK as a competitive shopping tourism destination.”

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