Heathrow in legal challenge over government ban on VAT-free shopping

Duty Free shopping

Britain’s biggest airport is preparing to launch a legal challenge to the Treasury’s move to end VAT rebates for tourists, arguing that it will intensify the crisis afflicting the coronavirus-battered retail industry.

It is understood that Heathrow Airport is leading plans for a judicial review of the government’s decision, which retailers say will trigger a £10bn reduction to spending in British stores and cost the Exchequer £2bn in lost tax revenue.

Sources said that a pre-action notice was filed last week, notifying ministers of the proposed challenge.

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A public announcement could be made as soon as Tuesday.

Dufry, the duty-free shopping giant, and Global Blue, the tax refund specialist, are also said to be participating in the legal action.

The judicial review, which has been under discussion for several weeks, is understood to have been drawn up on the basis that the consultation ahead of the Treasury’s announcement of the revised policy was unfair.

One source close to the move accused the Treasury of failing to conduct “proper and detailed economic analysis [and failing to] understand the implications this will have for job losses across sectors”.

They added that in pushing through the changes, ministers were “giving the UK’s competitive advantage away to the EU as the UK becomes the only outlier in removing such benefits and concessions”.

Ministers had based the move on “out-of-date data”, according to one person involved in the legal action.

The chancellor, Rishi Sunak, has come under pressure from MPs to explain the government’s decision to end the VAT rebate scheme for overseas visitors, which is regarded as a key element of Britain’s tourism industry.

While the judicial is being led by Heathrow, industry sources pointed out that many regional UK airports would also be imperilled by the move, particularly at a time when the COVID-19 crisis is hammering their revenue base.

Last month, a group of retail executives including bosses from Fortnum & Mason, Paul Smith and Ted Baker warned that the changes would encourage tourists to “spend their money in Paris, Milan or Madrid” rather than Britain.

The industry argues that “at least 70,000 unnecessary additional retail redundancies plus many more in tourism and hospitality” will be triggered by removing the existing tax breaks from the end of this year.

The Treasury has insisted that the existing scheme is vulnerable to fraud and has so far shown little sign that it is willing to give ground on the issue.

In a joint statement, the claimants said: “”We continue to work with Treasury ministers and officials regarding this matter.

“We believe there are solutions available that can address concerns, whilst protecting the UK’s competitiveness as a shopping destination and airport retail in a year that will be so critical as it recovers from the worst year in history.

“All are responsible for employing thousands of people and securing billions of inward spend each year.

“We are exploring all options available to us on this decision.”

Heathrow’s resolve to fight the government on VAT-free shopping is said to have been hardened by Boris Johnson’s announcement on Saturday that England will enter a second lockdown later this week.

Last week, it emerged that Heathrow had lost the crown of Europe’s busiest airport to Paris’s Charles de Gaulle as a consequence of the pandemic.

The Treasury has been contacted for comment.