Question to the HM Treasury:

To ask Her Majesty's Government what assessment they have made of the impact on (1) jobs, and (2) public finances, of the ending of participation in the VAT Retail Export Scheme; and what action they plan to take to offset any such impact.

Ahead of the end of the transition period, the Government has announced the VAT and excise duty treatment of goods purchased by individuals for personal use and carried in their luggage arriving from or going overseas (passengers). The following rules will apply from 1 January 2021:

- Passengers travelling from Great Britain to any destination outside the United Kingdom (UK) will be able to purchase duty-free excise goods once they have passed security controls at ports, airports, and international rail stations.

- Personal allowances will apply to passengers entering Great Britain from a destination outside of the UK, with alcohol allowances significantly increased.

- The VAT Retail Export Scheme (RES) in Great Britain will not be extended to EU residents and will be withdrawn for all passengers.

- The concessionary treatment on tax-free sales for non-excise goods will be removed across the UK.

The Government published a consultation which ran from 11 March to 20 May. During this time the Government held a number of virtual meetings with stakeholders to hear their views and received 73 responses to the consultation. The Government is also continuing to meet and discuss with stakeholders following the announcement of these policies.

The detailed rationale for these changes are included in the written ministerial statement and summary of responses to the recent consultation. A technical note has also been issued to stakeholders to expand on this document and to respond to issues raised by stakeholders.

HMRC estimate that VAT RES refunds cost around £0.5 billion in VAT in 2019 for around 1.2 million non-EU visitors. In 2019 the ONS estimate there were substantially more EU visitors (24.8 million) than non-EU passengers (16.0 million) to the UK. This implies an extension to EU residents would significantly increase the cost by up to an estimated £0.9 billion. This would result in a large amount of deadweight loss by subsidising spending from EU visitors which already happens without a refund mechanism in place, potentially taking the total cost up to around £1.4 billion per annum.

The concessionary treatment on tax-free sales currently affects airports that fly to non-EU destinations. The extension of duty-free sales to EU bound passengers will be a significant boost to all airports in England, Scotland and Wales, including smaller regional airports which have not been able to offer duty-free to the EU before.

HMRC estimate that around £150 million of VAT is not charged as a result of tax-free airside sales. As with the VAT RES, extending the relief to the EU would significantly increase the cost of the scheme and result in a large amount of deadweight loss by subsidising spending from EU-bound passengers which already happens.

The final costings will be subject to scrutiny by the independent Office for Budget Responsibility and will be set out at the next forecast.

The Government also recognises the challenges the aviation sector is facing as it recovers from the impacts of Covid-19 and has supported the sector throughout the pandemic, and continues to do so, including schemes to raise capital, flexibilities with tax bills, and financial support for employees.