Kate Forbes, finance secretary

In a letter to Rishi Sunak, Chancellor of the Exchequer, ministers highlight the impact this will have on retail and travel sectors, which have already been severely impacted by the coronavirus pandemic.

It is estimated that thousands of jobs and hundreds of millions of pounds in sales could be lost in Scotland as a result of the changes.

A full copy of the letter is below.

Dear Rishi

We write to express our opposition to the UK Government’s recent and unexpected decision to end both the VAT Retail Export Scheme and tax-free airside sales.

We urge you to reconsider this decision in light of the significant economic challenges that businesses affected by these changes are already experiencing due to COVID-19 measures.

Since your Minister’s announcement in September, we have received representations from many stakeholders across Scotland, each of whom has expressed surprise at the lack of engagement from the UK Government, and shared extensive concerns regarding the detrimental consequences for the sectors they represent. Hundreds of millions of pounds in sales could be lost in Scotland and thousands of jobs are at risk as a result of these changes, including jobs in rural areas.

Officials at HM Treasury have advised that these changes are necessary because WTO rules will apply to tax reliefs in the UK after the EU exit transition date. We further understand the UK Government’s position is that, under those rules, it will be necessary to apply tax reliefs equally to EU and non-EU travellers, and that the extension of duty-free shopping to EU visitors would not provide value for money to the UK.

We are concerned to learn that WTO rules are now assumed to apply to tax policymaking in the UK with effect from 1 January 2021. The Scottish Government has not received any indication to this effect and, clearly, the potential implications of this are far-reaching. We do not believe that this is the best route for Scotland, nor indeed the UK.

Furthermore, even if a principle of non-discrimination between EU and non-EU visitors does apply to UK tax policy from 1 January 2021, we believe it would be vastly preferable to extend duty-free shopping to EU visitors. It would be wrong to remove a much-needed source of support for retail and travel businesses and this decision would also have negative impacts for the wider UK economy. We cannot take our visitors from Europe for granted, particularly now.

The position for Scottish retail businesses is made additionally challenging by the imposition of tariffs on non-EU trade. In particular, Scottish wool and cashmere manufacturers are already suffering punitive additional tariffs of 25%, imposed by the US as part of the long-running Airbus-Boeing dispute.

Finally, we find it difficult to align the decision to abolish duty-free shopping with your proposals for the introduction of freeports across the UK. Your freeport model incorporates a number of tax incentives intended to attract inward investment to the UK. This seems to us to be a counter-intuitive and disjointed approach to supporting business, investment and jobs.

We would welcome your agreement to review this decision as soon as possible.