Arrivals Duty Free at UK Airports

Thursday 30th March 2023 Lords Chamber

Question

11:17

Asked by

[Lord Goddard of Stockport]

To ask His Majesty’s Government what assessment they have made of the (1) jobs created, (2) revenue generated, and (3) tax receipts generated, by the introduction of arrivals duty free at UK airports.

[The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)]

Duty free on arrival would place additional pressure on the public finances, to which excise duty makes a significant contribution. Any loss in tax revenue would have to be balanced by a reduction in public spending, increased borrowing or increased taxation elsewhere. Although there are no plans to introduce such a scheme, the Government keep all taxes under review.

[Lord Goddard of Stockport (LD)]

I thank the Minister for that Answer. Is she aware that arrival duty-free stores have had considerable success in Norway and Switzerland, where they provide additional commercial revenue streams for the airport to supply growth, and that passenger spending would increase by 30% if they were brought in in this country? Will the Minister ask the Treasury to commit to discuss arrival duty free with airports and ports and explore the wide-ranging economic benefits for the UK through consultation?

[Baroness Penn (Con)]

My Lords, we welcome engagement on this issue, and we have heard the case put forward for duty free on arrival. As I have noted, the Government believe it would place additional pressure on public finances. One challenge is that any potential uplift in spending potentially displaces spending with other domestic duty-paid retailers and therefore could compete against them. The Government would also need to be confident there was adequate infrastructure and resourcing to combat fraud and ensure compliance. We have no plans to consult on duty free on arrival, but we keep all taxes under review and we consider all available evidence as part of the tax-making policy process.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, I am delighted that the Government are not looking at this but, if they were to do so, would they look at the alcohol harm that could be caused by the increase of cheap alcohol?

[Baroness Penn (Con)]

My Lords, public health considerations are a consideration in the decision-making process. I am sure the noble Baroness will welcome both the changes that we have made to the system for alcohol duty, relating it to strength, and the decision in the Budget around uprating.

[Baroness Foster of Oxton (Con)]

My Lords, Brexit has presented the travel industry with a wealth of opportunities, and the clear advantages of permitting duty-free purchase on arrival into UK airports would provide us with a level playing field along with our global competitors in this area. Will the Minister urge the Secretary of State and the Chancellor to reverse the current situation, which is damaging our tourist sector and our world-class retail sector?

[Baroness Penn (Con)]

My Lords, I have set out the position on duty free on arrival, but of course my noble friend is right that, following our exit from the EU, we have been able to introduce changes. One of those changes has been outbound duty-free sales of alcohol and tobacco for passengers travelling to the EU from Great Britain, including by rail and on board cruise ships. That is a new opportunity for retailers to offer that service.

[Baroness Hoey (Non-Afl)]

My Lords, I think what the noble Lord, Lord Goddard, said was very sensible and I hope there will be a proper review of this matter. As the noble Baroness is the Minister who has been responding to me on my duty-free Question, could she now please give us a plain and simple answer for why, if Northern Ireland is still part of the EU, duty free cannot be got from Northern Ireland to Great Britain? More importantly, if you can get duty free from anywhere in Great Britain to the rest of the EU, why can we not get it from Belfast?

[Baroness Penn (Con)]

My Lords, Northern Ireland enjoys frictionless trade with both the rest of the UK and the EU, and the Government are committed to ensuring that that remains the case. Introducing duty-free shopping for goods moving between Northern Ireland and the rest of the UK or the EU would undermine that commitment.

[Lord Vaizey of Didcot (Con)]

My Lords, it may well be that the introduction of duty free has been one of the fantastic benefits of Brexit, but it seems odd that the Government have taken the opportunity of Brexit to get rid of tax-free shopping. That means that wealthy tourists who used to come here and shop now go to France, Germany, Spain and Italy. It hits our regional airports and our small manufacturers. The change has been opposed even by the Scottish National Party, which must be a clue that the Government have got this catastrophically wrong. Will the Minister keep this policy under review and eventually change her mind?

[Baroness Penn (Con)]

My noble friend is a persistent campaigner on this issue. He is right that, in leaving the EU, we were not able to maintain the previous policy of offering tax-free shopping to non-EU citizens only; it would have to be extended to all visitors, which would come with a significant cost. However, I reassure my noble friend that we keep all taxes under review, and we welcome representations to help to inform future decisions on tax policy.

[Lord Tunnicliffe (Lab)]

My Lords, the Government were slow to back the tourism sector during the coronavirus pandemic, U-turning on a special deal for airports and airlines and missing the opportunity to tie support to green initiatives. Their flip-flopping on the issue of tax-free shopping for international visitors and slowness on the issue of arrivals duty free have led many in the sector to question whether the Treasury truly understands the challenges that the industry faces. What plans, if any, do the Government have to bring forward a cross-departmental strategy for boosting British tourism?

[Baroness Penn (Con)]

My Lords, I reassure the noble Lord that the Government fully understand the contribution that tourism makes to our economy. To pick up his point about the Covid pandemic, through the pandemic the UK Government provided over £37 billion to support the tourism, leisure and hospitality sector in the form of grants, loans and tax breaks. Since then, the Government have contributed to various successful campaigns to stimulate recovery, including the £10 million National Lottery Days Out scheme and efforts by VisitBritain to deliver its international marketing campaign.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, following the question from the noble Lord, Lord Vaizey, who mentioned the Scottish National Party, is the Minister aware that in Scotland we have had a Minister for Tourism—which includes what we are talking about in this Question today—since 1999, but the current Government of Scotland have made no such appointment? Instead, they have appointed a Minister for Independence, when the Prime Minister has rightly ruled out a referendum. As a Treasury Minister, will she get her officials to look into this unauthorised expenditure by the Scottish Government?

[Baroness Penn (Con)]

My Lords, I will say that it shows that the Scottish Government’s priorities lie in the wrong place, instead of seeking to address the priorities of the people of Scotland, whether it is tourism or improving their health and education systems. I think the people of Scotland would welcome a greater focus on those issues and less of a focus on something on which we recently had a referendum that settled the issue.

[Lord Forsyth of Drumlean (Con)]

My Lords, further to the answer that my noble friend has given, surely this is a question of the propriety of the use of public funds. The Scottish Government are involved in spending public money on a matter for which they have no rights. If these people were in local government, they would be being surcharged.

[Baroness Penn (Con)]

My Lords, I will repeat what I said to the noble Lord, Lord Foulkes, that this absolutely demonstrates that the priorities of the Scottish Government lie in the wrong place and are not aligned with the people in Scotland.

[Baroness Randerson (LD)]

My Lords, returning to the abolition in 2020-21 of the right to reclaim VAT on purchases made in high-street shops, I think the Minister said that nowadays that would cost a considerable amount. But the tourism and retail industries contest that claim. It is two years since that decision was made. Surely the Treasury has up-to-date details.

[Baroness Penn (Con)]

The noble Baroness is right that there are direct costs of offering any scheme through VAT being refunded but there may be indirect benefits in terms of stimulating tourism and other spending. The Treasury seeks to take both those issues into account when looking at these issues. When the decision was taken to withdraw VAT-free shopping for visitors, the Treasury also held a round table with the industry to hear those views. As I said to my noble friend Lord Vaizey, we continue to welcome representations to help to inform future decisions.