Roger Gale: How duty-free on arrival shops can help the aviation sector recover and thrive

6 Apr

Sir Roger Gale is MP for North Thanet.

Since the mid-20th Century, duty-free sales at airports have been a fundamental part of a passenger’s journey. Today, they are an inseparable part of the way our travel ecosystem functions.

In Europe, for example, duty-free sales were predicted (pre-pandemic) to exceed £13.5bn by 2022, with the UK set to retain its position as the largest market in the region.

However, this often misunderstood driver of growth and affordable travel has come under some unfair criticism recently from ardent tax-purists. To understand the impact of duty-free, you must look beyond the point of sale and consider the wider implications and landscape.

Over the years, duty-free sales have become an increasingly vital source of revenues for airports, with annual sales equating to up to 35-40 per cent of total revenue for some. This revenue has helped to provide jobs, keep ticket prices at historic lows (through subsiding airport charges) and support regional and international connectivity – ensuring that the UK remains ‘open for business’ and can support this Government’s ‘global Britain’ agenda.

Without non-aviation income such as duty-free sales, airports will have to raise landing charges, driving up airline prices for consumers and eating into airport revenue. And bear in mind that this airport revenue is a major driver of local capital investment. Profits are impacted, but so too is the community labour market. The effect on the regions outside of London would be profound as many regional airports already require support from the Government in order to operate and greatly depend upon the revenue derived from duty-free sales.

With the ongoing pressure on the whole aviation sector the suggested removal of duty-free shopping would, if implemented, be an absolute hammer blow for the UK’s travel industry and ‘UK plc’ more broadly. The travel sector is hugely important to Britain. Aviation alone contributes over £52 billion to the national economy and supports over 960,000 jobs and the UK`s airports are vital international economic gateways that enable our economy to prosper through trade, tourism, business travel and global connectivity.

Our aviation industry is on its knees as a result of the pandemic. While the introduction and successful roll-out of a range of viable vaccines has at last delivered an end in sight to the current situation that the travel industry finds itself in, most travel hubs will require further assistance to speed recovery and to help them return to being net contributors to the UK economy.

Policymakers need to be looking at ways in which they can support this critical industry. Any suggestion that puts the fastest possible recovery for the aviation sector at risk must be discounted.

Government support, while welcome, is no long-term answer either. A diverse and integrated passenger experience, which of course includes duty-free, is what will meet passenger demands and put travel hubs in the right place to not only survive but to prosper. Rather than distributing taxpayers hard-earned money in the forms of tax breaks or grants, the Government needs to implement self-sustaining measures that are not only mindful of the fiscal restraints on our economy but also allow the industry to stand on its own two feet and flourish.

Duty-free on-arrival shops, for example, would enable passengers arriving in Britain to purchase duty-free items immediately before going through customs. This easy to implement, cost-neutral proposal would drive forward investment through capital expenditure, create jobs and, according to independent research, increase passenger spend in the UK by between 20-30 per cent.

This is a proven concept, successfully deployed around the world, including by some of our closest allies, such as Australia and all of the EEA countries, that have very similar taxation principles and structures to our own.

Brexit, love it or loathe it, has presented the British travel industry with an opportunity to reinvent its future outside of the EU and forge its own path on the world stage. Fundamental to achieving this ambition is ensuring the UK retains its supremacy as the most globally-connected country in Europe – be that for trade, tourism, or overall connectivity.

Duty-free on arrival shops would not take sales away from the UK’s high street, and neither would they increase the amount of goods being sold. Rather, they have the potential to repatriate sales that currently take place at the point of departure abroad – whether within the EU or further afield. Passengers arriving in the UK would still be subject to the same limits upon purchases that they can carry with them as duty-free purchases, so no additional goods will enter the UK.

Regardless of whether this policy is implemented, these products will still be purchased – so better that they are bought on arrival in Britain. This is an opportunity to capture duty-free sales already taking place abroad, save the unnecessary carriage of goods over many miles crammed into overhead lockers, and ensure the economic benefit of those purchases are realised in all parts of the UK.

With the European Union currently considering such a proposal as part of the ‘EU Tourism and Transport Package’, it is vital the UK Government follows suit.

Duty-free on arrival shops would make a tangible difference to the UK’s travel sector by helping to kickstart economic growth, support regional development, and deliver employment opportunities. They would also raise revenues for the Treasury through Corporation Tax and increased PAYE from the jobs created. I urge my Conservative colleagues, including the Chancellor of the Exchequer, to join me in helping to turn this opportunity into a reality.