Exchequer `set to lose pounds 18m' if duty-free ends

The duty-free industry continued its fight for survival yesterday with a new report claiming that the abolition of duty-free shopping in the European Union would reduce UK tax revenues, not increase them.

The report, which was commissioned by the Duty Free Shopping Confederation, claimed that if the planned abolition of duty-free shopping went ahead in 1999 it would cost the UK government pounds 18m a year in lost tax revenue.

It said only 15-25 per cent of current expenditure on tax-free liquor and tobacco would continue after the abolition, yielding annual duty and VAT returns of pounds 120m to the Exchequer.

But against that the report said tax returns would be hit by lower corporation tax from the UK drinks and tobacco industry whose profits would be hit. There would also be an impact from lower income tax and national insurance contributions from the jobs it claims would be lost.

Guinness estimates that up to 700 jobs could be lost in the Scotch whisky industry alone.

The report said the end of the industry would encourage consumers to switch from products with a high UK-manufactured content, such as Scotch, to goods with lower UK content. It also predicted that duty-paid sales would switch from the UK to other EU countries where duty rates are lower.

Lord Rees, chairman of the Duty Free Confederation and a former chief secretary to the Treasury, said: "This study shows that duty-free and tax-free shopping is hardly a burden to the taxpayer. We hopethe Government will look at the duty-free issue afresh in the light of the findings of the study."

This seemed unlikely yesterday judging by the response from the Customs & Excise department: "We will look at the report but the Government's position remains the same. There will be a transitional period for duty- free shopping which started in 1993 and will run until 1999. After that, it will end."

Though the duty-free shopping industry is fighting its corner, most insiders admit it is a lost cause. Unless overturned, duty and tax-free shopping will be abolished for passengers travelling between EU countries from 30 June 1999.

The industry is worth pounds 1bn a year in the UK and pounds 4bn across the EU. It is estimated 30 million consumers take advantage of duty-free each year in the UK.