Exiting the European Union (Excise)

Kemi Badenoch Excerpts

Wednesday 3rd February 2021 Commons Chamber

[The Exchequer Secretary to the Treasury (Kemi Badenoch)]

Britain’s departure from the European Union brings with it the freedom to reintroduce duty-free sales and make other tax changes that will deliver Brexit benefits to British tourists. Such gains have been enacted by the Travellers’ Allowances and Miscellaneous Provisions (EU Exit) Regulations 2020, which also introduced crucial changes to the VAT and excise rules for passengers following the transition period.

The new rules form a carefully considered package of measures that was introduced following a wide-ranging consultation. The changes take into consideration the Government’s aim of minimising disruption at the border, along with World Trade Organisation commitments that require the Government to align the treatment of passengers travelling to and from the EU and non-EU countries.

The provisions in the SI ensure the smooth flow of passengers entering Great Britain by reducing the need for them to stop at the border to declare goods that they have purchased. My hon. Friend the Member for North Norfolk (Duncan Baker) elaborated on how, from his personal experience, the measure removes bureaucracy. Without the instrument, EU and non-EU passengers would be treated differently, traveller flow at the border would be disrupted and the UK would breach its international obligations under World Trade Organisation law.

The measures I shall outline will have a hugely positive impact on UK travellers for a number of reasons. As my hon. Friend the Member for South Ribble (Katherine Fletcher) said, for the first time in more than two decades, the tens of millions of UK passengers who visit the EU every year—in non-pandemic times—will be able to enjoy duty-free sales. For example, with UK excise duty no longer due, a 1 litre bottle of Scotch could be around £11.50 cheaper.

In addition, we have quadrupled the alcohol allowance for passengers arriving in Great Britain, making it one of the most generous in the world. Under the new rules, passengers will be allowed to bring into Great Britain three crates of beer, two cases of wine and one case of champagne for personal use without having to pay the relevant taxes. This represents an excise duty saving of up to £120. My hon. Friend the Member for Dover (Mrs Elphicke) praised of the significance of such measures to her constituency, which has a port for travel straight to the EU.

I recognise the concerns expressed by the hon. Members for Paisley and Renfrewshire North (Gavin Newlands) and for Gordon (Richard Thomson), along with others, about the ending of the VAT retail export scheme and the removal of tax-free airside sales. Although the latter policy change on tax-free airside sales is not actually part of this instrument, let me explain our thinking behind the decisions.

In simple terms, the maintenance of the VAT RES and tax-free airside sales after the end of the transition period was never an option for the Government. In reality, the choice we faced was between extending the schemes to all EU travellers or removing them both completely, because the World Trade Organisation rules specify that goods bound for different destinations must be treated the same. However, because EU visitors have never benefited from the VAT RES and still spend in UK shops without it, to extend it now would present a large dead-weight loss, and in effect the Government would be subsidising the shopping of EU visitors. I am sure hon. Members would agree that this would be an unwise use of taxpayers’ hard-earned cash.

My hon. Friend the Member for South Cambridgeshire (Anthony Browne) set out clearly and concisely why this was not a fair and efficient use of taxpayers’ money, and I thank him for making such a well-argued case. In addition, data and evidence submitted as part of the Government’s consultation demonstrated that the VAT RES disproportionately benefited London and the south-east of England. In fact, around 90% of sales were made in London and Bicester Village in Oxfordshire. My hon. Friend the Member for Penistone and Stocksbridge (Miriam Cates) made the excellent point that other regions and, in particular, smaller high streets did not appear to gain as much, if at all.

I take the point made by my hon. Friend the Member for Kensington (Felicity Buchan). She and I have had several discussions on this issue and I have also had extensive representations from my hon. Friend the Member for Moray (Douglas Ross). However, they will both know that the Treasury disagrees with their assessments. The Office for Budget Responsibility estimates that the withdrawal of the VAT RES will result in a significant direct Exchequer saving of £1.84 billion in just over five years. In addition, the OBR estimates that the withdrawal of tax-free airside sales will result in a saving of £780 million over the same period.

[David Linden]

With all those forecasts in place, can the Minister tell the House how many jobs—such as that of my constituent, Sharon, whom I represent—will be lost when the Government proceed with this?

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[Kemi Badenoch]

I thank the hon. Member for his representation. That information can be found in the tax impact information note.

I assure hon. Members that the Treasury will continue to keep these measures and their impacts under review. Let me turn more specifically to the prayer motion tabled against this instrument. I fully recognise the desire of hon. Members to champion Britain’s retail and tourism sectors. I share the same desire to see those important industries prosper. This package of measures will boost all airports, including those such as Edinburgh, Cardiff and Newcastle. These hubs primarily deal in travel to the EU, and so could make only limited use of airside tax-free sales anyway. They will now stand to gain significantly from duty-free sales.

As I have demonstrated, the measures contained in this legislation constitute a more equitable distribution of benefits to both consumers and airports across Great Britain. To remove this legislation would spell an end to these significant gains. Such a move could also cause disruption at the UK border by preventing the smooth flow of passengers, as those coming in from the EU and non-EU countries would be treated differently. Let me also remind hon. Members that the introduction of duty-free and the extension of personal allowances are estimated to cost the Exchequer £890 million over five years. That money needs to be found from somewhere. I am sure hon. Members will agree that it is only correct that the savings generated from the withdrawal of both the VAT RES and airside tax-free shopping should be used to support a greater number of consumers and airports across Great Britain.

The hon. Members for Kirkcaldy and Cowdenbeath (Neale Hanvey) and for Ealing North (James Murray) raised the impact of these schemes on airport jobs specifically. The hon. Member for Ealing North also raised the late enactment of the legislation. I would say to him that he was not in this House when Labour Members wasted precious time during the transition period trying to frustrate and stop Brexit. Had they not done that, perhaps we would have been able to enact this sooner. I emphasise that the main impact on these businesses is the large drop in passenger numbers due to the pandemic—not to these schemes—which is why we have supported the aviation industry in the following ways. The airport and ground operation support scheme, announced on 24 November, will provide support for eligible businesses up to the equivalent of their business rate liabilities in the 2021 financial year. This is subject to certain conditions and a cap for claimants of £8 million. This is intended to help to reduce cash burn and put on lock shareholder and lender support. While this applies only to airports in England, it constitutes new spend for the Department for Transport, so Barnett consequentials will apply as standard. The Government also recognise the challenges the aviation sector is facing as it recovers from the impacts of covid-19. We have supported the sector throughout the pandemic and continue to do so.

The hon. Member for Edinburgh West (Christine Jardine) was right to ask about the potential impacts of this measure. HMRC research shows that in 2019, fewer than one in 10 non-EU visitors to the UK used the VAT RES. That is 1.2 million out of 60 million visitors. However, the claims in the Centre for Economics and Business Research report, where her figure of 138,000 jobs comes from, are based on the implausible assumption that the end of the scheme will cut non-EU visitor numbers by 4.96 million. That is simply not credible; it is four times as many people as currently use the scheme. Even the report’s more conservative analysis is underpinned by an assumption that non-EU visitors will reduce by 7.3% or 1.17 million, which is almost the total number of current users of the VAT RES scheme. It is unrealistic to assume that all current VAT RES users will cease to visit the UK.

I hope that I have been able to answer hon. Members’ many questions. I am delighted that we can use our new freedoms outside the EU as my hon. Friend the Member for Redcar (Jacob Young) comprehensively set out—that is, to achieve gains for local economies and passengers. As I mentioned, there is a significant cost to the Exchequer. However, this has been weighed against the revenue from the other changes that we are making. Together, these measures support our airports, benefit consumers and protect the taxpayer. For those reasons, I ask the House to reject the motion and support the Government’s approach.