A lawyer warned today that hundreds of jobs could go in the Channel Islands after a High Court judge gave Chancellor George Osborne the go-ahead to disrupt exports of tax-free goods by closing a “loophole”.
Ministers in Jersey and Guernsey wanted to stop Mr Osborne removing a VAT exemption on low-value goods - mainly CDs and DVDs - exported from the islands to the UK.
But Mr Justice Mitting refused to declare Mr Osborne's plan unlawful and Government lawyers told a High Court hearing in London that new legislation would go through in the Budget on March 21.
David Vaughan QC, representing ministers in Jersey, told the judge that the decision could leave "1,000 people out of work" on the island.
The judge was told that the VAT exemption was a piece of European Union (EU) law which applied to goods bought outside the European Union for less than £15.
Traders in Jersey and Guernsey benefited from the "low-value consignment relief" rule because the Channel Islands were not considered part of the EU for VAT purposes.
Lawyers said in the last decade the rule had triggered the growth of a multimillion-pound business in the Channel Islands in which low-value items were ordered over the internet by UK consumers.
UK traders had complained that the rule stopped them competing on a "even field" and had caused business closures and job losses in Britain.
A pressure group - Retailers Against VAT Avoidance Schemes (Ravas), which represents about 80 UK internet and high street traders - said it had been campaigning to "abolish the loophole".
Channel Island ministers took legal action in an attempt to stop the Government removing the exemption.
They argued that the UK Government could not lawfully allow an exemption on the importation of goods "from every country in the world outside the EU - except for Guernsey and Jersey".
But Mr Justice Mitting disagreed. He said there was no legal "requirement" that the UK Government should treat one territory "the same as another".