Exiting the European Union (Excise)

Gavin Newlands Excerpts

Wednesday 3rd February 2021 Commons Chamber

[Gavin Newlands (Paisley and Renfrewshire North) (SNP) [V]]

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”

and

“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.

--- Later in debate ---

[Gavin Newlands [V]]

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.