Duty on Shopping: UK Entry Points

Debate between Henry Smith and Christine Jardine

Wednesday 6th September 2023 Commons Chamber

[Henry Smith (Crawley) (Con)]

I rise to speak as the Member of Parliament for Crawley, a constituency that proudly includes Gatwick airport within its boundaries, and as the chair of the all-party parliamentary group for the future of aviation, for which I declare an interest. It is in those roles that I have been determined to support the aviation, travel and tourism industries as they continue to recover from the covid-19 pandemic, and I call on the Government to introduce duty-free shopping on arrival at airports and international rail and ferry terminals in Great Britain.

Reinstating duty-free shopping for passengers arriving from Europe and significantly increasing inbound personal allowances upon Brexit proved popular, with a 45% increase in sales of duty-free items by UK passengers shopping overseas in our first year outside the European Union. However, British businesses and airports do not benefit from that. Passengers can spend their increased allowances abroad only at their point of departure. The introduction of duty-free on arrival stores at airports, ferry ports and international railway stations would repatriate those sales to Great Britain, crucially ensuring that British businesses are the main beneficiaries of the post-Brexit duty-free system.

I will highlight three main benefits: the effect on the recovery of the travel industry, the impact on British competitiveness, and the importance of choice and the passenger experience. On the first benefit, travel recovery and regional connectivity, I do not need to repeat to the House the full impact of the covid-19 pandemic on the aviation sector. As the sector continues to recover, we know that travel hubs need non-aeronautical revenues such as retail and duty-free. Indeed, as much as half of total airport income can come from those activities. All UK airports and international terminals will benefit from duty-free on arrival stores. The creation of new retail areas at UK airports would trigger significant capital expenditure for building works as infrastructure is adapted to take advantage of this new opportunity, resulting in further economic investment, including creating construction jobs for the duration of those projects. The increase in sales can be reinvested in new routes, improving passenger numbers and attracting more visitors, making London and regional hubs across the UK more competitive with rival cities such as Paris, Milan and Barcelona.

I draw the House’s attention to the example of Norway. Being a non-EU nation, Norway introduced duty-free on arrival stores in 2005 and there was an immediate impact on Aberdeen airport. Sales to Norwegian-bound passengers fell by 40%, with the average spend per passenger halving. The resulting growth on commercial revenues in Norway was invested in route development, which allowed it to attract new airlines by lowering charges. Norway now has the lowest aeronautical charges per passenger in the whole of Europe. More passenger growth, more income and more investment—all without the need for the Government to fund support.

The second benefit is the impact on global competitiveness. We know that more than 60 countries have now implemented duty-free on arrival, including most major travel hubs in Asia, the middle east and Oceania, as well as fellow non-EU countries. If the EU implemented arrival duty-free stores before we did, it would have a detrimental effect on British ports of entry. European Travel Retail Confederation modelling predicts arrivals duty-free gross value added boosts would be some €300 million for Spain, €190 million for Italy and €580 million for France. Such sales would have a devastating impact on UK port departure stores. However, the UK Government could get ahead and legislate for arrivals stores first, future-proofing the sector.

[Christine Jardine (Edinburgh West) (LD)]

I completely agree with the hon. Gentleman’s argument. My own local airport, Edinburgh airport, would benefit greatly from duty-free arrivals—not least because, as in quite a few international airports, passengers have to go through the shopping area to get out of the airport. Therefore, in some cases there might not even be the need for capital investment. Having experienced this in Australia, it is very tempting when we arrive in a duty-free area to buy duty-free, so there would be a huge incentive for people coming to this country to buy duty-free on arrival and benefit the local economy.

[Henry Smith]

The hon. Lady is exactly right; I have experienced similar when travelling to Australia or closer countries such as Switzerland. The boost that that gives to those local economies is quite significant.

In this country, however, we need to act quickly. Such a plan for arrivals duty-free is under active consideration by the European Commission as part of the directorate-general for taxation and customs union’s review into travel and tourism taxation. Introducing arrivals duty-free is the only way we would be able to level the field.

The third benefit is greater choice and passenger convenience. The modern passenger has come to expect the retail element of the travel experience. Duty-free purchases on arrival will contribute to a more seamless travelling experience. Arrivals shops are a separate market in competition with departure duty-free sales from airports abroad. The lack of arrivals duty-free is placing us at a competitive disadvantage.

Arrivals duty-free is not only convenient, but popular too: polling commissioned in 2022 found 45% of travellers regard carrying duty-free items back to the UK on their flight as an inconvenience. Polling conducted at several UK airports last year found that in many areas, including my own Gatwick airport, two thirds of people would support the Government introducing such stores.

Nevertheless, I am aware that there remain concerns among those on the Treasury Bench, and I am keen to address them. The first concern from His Majesty’s Treasury, I suspect, is the revenue implications for the Exchequer. Research from York Aviation predicts that such stores will result in additional sales of £100 million each year. An increased spend of between 20% and 30% per passenger is also anticipated. I therefore ask the Government to again look at the example of Norway, where, as of 2019, duty-free on arrival sales have increased by 108% since the policy’s implementation, and are growing consistently at an average rate of more than 10% each year.

In this scenario, the initial loss of excise duties for HM Treasury is quickly offset by other forms of taxation, in addition to new jobs. At Zurich airport, for example, the introduction of a single arrivals duty-free store meant an additional 50 jobs. For the UK, the increase in income tax and corporation tax is estimated to be an additional £50 million each year for the Exchequer. Even at the lowest levels of predicted sales, the impact on Government revenues is still likely to be only cost-neutral at worst. The policy would also increase sales on duty-paid categories.

The second concern that I suspect the Treasury has is about the impact on the domestic high street. Although I appreciate that concern, we need to be clear that the only competition to arrivals duty-free stores is from overseas departure duty-free stores. The introduction of the policy has the support of many brands that sell in the domestic market both on the high street and in travel retail channels. The size of the inbound duty-free market is less than 2.2% of the domestic market for the same products. Even if the policy were more successful than expected, any impact on the high street would be nominal. Passengers at an airport are drawn from a far wider catchment area than those in town centre stores, for example. To look again at examples from elsewhere, Switzerland and Norway have both had arrivals stores for over a decade, and neither has detected any impact on high street sales.

The third concern that I suspect the Treasury may have is about implementation. Let us be clear: in the model of arrivals duty-free stores proposed by the industry, arrivals stores would be located before customs clearance. That would avoid any additional staffing or resourcing pressures, and could provide a more robust level of control and oversight. Border Force and His Majesty’s Revenue and Customs would have the opportunity to observe and audit purchases using existing mechanisms, as they do now, and monitor inbound duty-free allowance limits. As a result of Brexit, only secondary legislation will be needed for implementation, so the change would not be burdensome on the busy schedule and agenda of this House.

Let me reiterate my support for sustainable aviation fuel more broadly, and for the wider aim of the aviation sector reaching jet zero—the commitment that UK domestic aviation will achieve net zero carbon emissions by 2040.