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Thursday, June 3, 1999 Published at 15:58 GMT 16:58 UK

Business: The Economy

The nonsense of duty-free

The impending abolition of duty-free sales has caused angry rows

In under a month, duty-free sales will be abolished. If they disappear on 1 July, it will spell the end of a regime that has been a nonsense for many years, says BBC Economics Reporter Chris Giles.

Why is it that can you fly to Brussels from London and buy duty-free goods, but not if you fly to Glasgow?

Why can't you get duty-free if you take the train to Brussels using Eurostar but you can if you drive there via the Channel Tunnel using Le Shuttle?

[ image: The system is ludicrous, says Chris Giles]
The system is ludicrous, says Chris Giles
What is the difference between crossing the English Channel when you can buy duty-free and crossing the Rhine between Germany and France when you can't?

There are no good answers to these questions.

But it's not just the anomalies of the duty-free regime that mean it should go - it's bad for Britain's and for Europe's economies.

The duty-free system operates simply as a subsidy to ferry companies and airlines - the considerable profits they make on duty-free sales enable them to charge lower fares.

This subsidy has to be paid for. It's paid in the form of higher taxes by anyone who doesn't travel or buy duty-free goods.

These cross-Channel subsidies have unpleasant side-effects. They make smuggling from the Continent more profitable and raise rates of both smoking and drinking alcohol in Britain, which the government is trying to reduce.

So it's bizarre that this government should try to defend duty-free sales.

Boost for UK jobs

But what about the squeals from the duty-free lobby?

Ferries and airlines will probably be forced to increase the prices of the tobacco and alcohol they sell.

But much of it will still be sold at lower continental duty rates and they won't have to impose limits on the amounts each person can buy. So it's not certain they will lose out that much.

[ image: Travellers on Le Shuttle can buy duty-free goods]
Travellers on Le Shuttle can buy duty-free goods
But even if the duty-free industry suffers, the money spent will go elsewhere - much of it on purchases within the UK, creating other jobs - and if fares go up and fewer people go on booze-cruises to France, it could substantially increase sales and jobs in the UK.

There will be some difficult issues to be resolved when duty-free is abolished.

Current EU proposals are somewhat muddled. VAT will be charged at the rate of the country people are leaving, but duties on alcohol and tobacco will be charged at the rate of the country where the goods are bought.

This means that on a cross-Channel ferry, a bottle of whisky or 200 cigarettes would have four different prices:

1 When travelling to France and in British waters, you would pay British VAT and British duty

2 When travelling to France and in French waters, you would pay British VAT and French duty

3 When travelling to Britain and in French waters, you would pay French VAT and French duty

4 When travelling to Britain and in British waters, you would pay French VAT and British duty

Having four different prices on board depending on which direction you are travelling and how far across the channel you are would not make a lot of sense.

So operators are likely to keep their shops closed in British waters - hardly an ideal prospect.

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