Heathrow Airport is preparing to launch a legal challenge against the government’s decision to ban VAT-free shopping for tourists to the UK from the end of this year.
Last month the Treasury said the move would come into effect in airports for items such as electronics, food and clothing for international visitors by 31 December, when the Brexit transition period ends.
Britain’s busiest airport said it would intensify the financial crisis the industry is already facing thanks to the coronavirus pandemic.
A pre-action notice alerting ministers of the proposed challenge was filed last week, Sky News reported, citing sources familiar to the matter.
Sky reported that 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 by pushing through 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."
Duty-free shopping giant Dufy and Global Blue, the tax refund specialist, are also reportedly taking part in the legal action, the broadcaster said. A public announcement could be made as soon as Tuesday.
Retail bosses, including the heads of Marks and Spencer (MKS.L) and Selfridges, have previously warned that banning VAT-free shopping for overseas visitors would trigger billions of pounds reduction to spending in stores and cost the Exchequer £2bn ($2.6bn) in lost tax revenue. It would also put around 70,000 jobs at risk.
The TaxPayers Alliance called the move a “kick in the teeth,” while the Association of International Retail (AIR) urged the chancellor to "look again at this devastating decision."
If the move goes ahead the UK will become the only European country not to offer VAT-free shopping for international visitors.
A joint statement from claimants involved in the legal challenge 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.”
Meanwhile a HM Treasury spokesperson said: “We recognise the challenging times facing the aviation sector, which is why we have acted quickly to provide the industry with an unprecedented package of support, including action on airport slots, loans, and tax deferrals.
“These tax changes followed extensive consultation with industry and mean that people travelling to the EU can buy beers, wines and spirits duty free for the first time in over 20 years - a huge boost to British airports. For travel outside of Europe, we’re ending tax-free shopping on other goods in airports after concerns that the saving wasn’t always passed on to consumers, putting the high street at a disadvantage.
“Over 90% of non-EU visitors to the UK don’t use the VAT Retail Export Scheme and extending it to the EU could bring the total cost up to £1.4billion a year. They can still buy items tax free in store and have them sent directly to their overseas addresses.”
Last week Heathrow lost its title as Europe’s busiest airport to Paris's Charles de Gaulle as a result of the pandemic.
Passenger numbers between July and September nosedived more than 84% compared to the same period the year before. Heathrow recorded a total of 18.97 million passengers in the year to the end of September, while Charles de Gaulle had 19.27 million.
The company significantly revised down its 2021 forecasts as COVID-19 and restrictions continue to hit air travel, predicting 37.1 million passengers next year. It had forecast 62.8 million in June, a sharp decline on 2019 levels but still a significant recovery compared to the 22.6 million journeys now expected this year.
Heathrow also posted a loss of £1.5bn in the first nine months as revenues tumbled 72% year-on-year to £239m.
Watch: Heathrow loses title of Europe's busiest airport