ABTA response to the Culture, Media and Sport Select Committee Inquiry The impact of Brexit on the creative industries, tourism and the digital single market inquiry This response is submitted on behalf of the membership of ABTA – The Travel Association. ABTA was founded in 1950 and is the largest travel trade association in the UK, with around 1,200 members and over 4,500 retail outlets and offices. Our Members range from small, specialist tour operators and independent travel agencies specialising in business and leisure travel, through to publicly listed companies and household names. ABTA Members provide 90% of the package holidays sold in the UK, with Members also selling millions of independent travel arrangements. Annually, ABTA Members’ turnover is in excess of £32.5 billion. ABTA’s focus is ensuring that Members can operate their businesses in a sustainable and successful manner, enabling their customers to travel with confidence. 1. Executive summary 1.1.

ABTA warmly welcomes the Culture, Media and Sport Select Committee’s decision to hold an inquiry into the impact of Brexit on tourism.

1.2.

Travel and tourism provide an important economic contribution to the UK. The industry is worth in excess of £130bn per annum in overall economic impacts (GVA) and supports over 3.1 million jobs right across the UK1.

1.3.

ABTA urges the Committee to recognise the enormous potential of the UK’s travel and tourism industry: inbound, outbound, and domestic, in driving economic growth and delivering employment opportunities.

1.4.

Ahead of the EU Referendum, ABTA launched a report with Deloitte, the leading financial services firm, entitled ‘What Brexit might mean for UK travel’2,which examined the consequences of leaving the EU for UK travel businesses and their customers. ABTA would draw attention to this report in supporting the work of the Committee.

1.5.

Since the referendum, ABTA has focused on identifying immediate priority areas, where the industry is calling upon the UK Government to act quickly to protect vital rights and protections for travel businesses and UK travellers alike. These immediate priorities are:

1

Deloitte 2013, Tourism: Jobs and growth ABTA-Deloitte 2016, What Brexit might mean for UK tourism. The report can be accessed online at www.abta.com/eureferendum 2

Impact of Brexit on Tourism| 1

1. Continued access to liberalised aviation markets (and for other transport modes) in Europe and globally. 2. Ensuring sufficient access to EU employment markets to enable operational consistency for UK travel and tourism businesses. For example, enabling travel businesses to continue the practice of posting workers overseas for temporary periods. 3. The continuation of visa-free travel between the UK and EU countries, whilst ensuring that other practical barriers to travel are avoided. In particular, the Government must seek to urgently address the issue of future border arrangements between Northern Ireland and the Republic of Ireland. 4. Securing the UK’s continued participation in the European Health Insurance Card (EHIC) scheme, which guarantees UK travellers access to health care systems across the EU. 5. Ensuring the UK Government fully explores, as part of the development of the future UK-EU trading agreement, how the best regulatory systems for the UK travel industry can be delivered once the UK has left the EU. 1.6.

In addition to the immediate policy priorities outlined above, ABTA has sought to provide an overview of the regulatory opportunities that could be created by the UK leaving the EU. Whilst many of these opportunities are very closely linked to the final agreement reached between the UK and the EU on a future trading relationship, ABTA believes it is important the UK Government commits to exploring regulatory opportunities proactively in the event that EU laws no longer directly apply to the UK travel and tourism industry. 2. The value of the UK travel and tourism industry

2.1.

Travel and tourism provide an important economic contribution to the UK. The industry is worth in excess of £130bn per annum in overall economic impacts (GVA) and supports over 3.1 million jobs right across the UK3.

2.2.

ABTA believes it is important that the Government regards all three sectors of UK tourism, inbound, outbound and domestic, as equals, and ensures tourism is adequately considered in all aspects of the policymaking process. UK tourism is interconnected and interdependent, with businesses across all three sectors reliant on shared infrastructure and a shared consumer base.

2.3.

ABTA is concerned that too often policymakers disregard the vital economic contribution that is made to the UK economy by the outbound travel sector. Outbound travel is worth £11.3bn in direct economic contribution to the UK annually, generating in excess of £28bn annually in GVA. The outbound travel sector offers direct employment to 214,000 people, supporting a total of more than 450,000 jobs across the UK4. ABTA urges the Government to ensure it places adequate consideration on the impacts of the UK’s exit from the EU on outbound travel businesses and their customers.

2.4.

Further, we would draw the attention of UK policymakers to the recent findings of the Office of National Statistics (ONS), contained in the Tourism Satellite Accounts 2014, which demonstrate that pre-trip expenditure on overseas travel within the UK is worth some £35bn annually, supporting jobs and growth throughout the UK economy. Notably, this

3 4

Deloitte 2013, Tourism: Jobs and growth ABTA-CEBR 2015, Driving Growth: The Economic Value of Outbound Travel

Impact of Brexit on Tourism| 2

economic contribution is higher than that recorded from overseas visitors to the UK (£25bn). 2.5.

There are very strong links between the UK and EU in relation to both leisure and business travel. By examining the flow of passengers between the UK and the EU, using figures produced by the ONS’s annual Travel Trends report, we can demonstrate the strength of this trading relationship and the importance of ensuring a suitable resolution is reached that enables the continuation of liberalised access to UK and EU travel markets. Figures, from the ONS Travel Trends Report, published on 20 May 2016, which reflect travel undertaken in 2015, show that there were 32.2 million UK to EU holidays, and 8.9 million EU to UK holidays. When it comes to business travellers, there were 5 million UK to EU trips, and 6.6 million EU to UK trips. 3. Priorities for the UK travel and tourism industry

3.1.

ABTA has considered a wide range of regulatory and operational matters for the UK travel industry connected with the UK’s membership of the EU. In this section, we have outlined the main regulatory considerations for travel and tourism businesses, focusing on areas that we believe should be prioritised during negotiations on the UK’s exit from the EU.

3.2.

Before examining the individual regulatory priorities that ABTA has identified, we would also like to highlight the importance of the Government doing as much as it can to address the considerable economic uncertainty that has been created by the outcome of the EU referendum. We are aware that uncertainty has been raised as a major concern for many businesses across the UK, but this is particularly true of the travel and tourism industry, which is especially vulnerable to economic shocks and is reliant upon consumer confidence and spending.

3.3.

A particular concern for the UK travel industry is the impact the result has had on the currency markets, with the UK Pound falling heavily against both the US Dollar and the Euro, in particular. While the lower exchange rate is positive for exporters, and can be expected to have a short-term positive impact on inbound tourism by increasing the attractiveness of the UK as a destination market, there are significant implications for many outbound travel businesses in terms of their contractual costs. If these costs remain higher, over time the increased costs experienced by businesses can be expected to feed through to consumers in the form of higher holiday prices. Further, both domestic and inbound tourism businesses, and associations such as the Tourism Alliance, have expressed longerterm concerns over the potential impact of the referendum vote, stemming primarily from negative consequences of the referendum debate on the UK’s image and perception overseas, and the possible impacts on the employment market.

3.4.

With this in mind, ABTA welcomes the steps that the Government has recently undertaken to begin addressing uncertainty, most notably, by confirming the Government’s planned regulatory path in relation to leaving the EU, with all EU legislation to be retained on the UK statute books at the point of departure from the Union through the adoption of a specific UK Act of Parliament. We also welcome that the Government has sought to outline when negotiations with the EU will commence, by confirming Article 50 will be invoked before the end of March 2017.

3.5.

However, in the view of ABTA and its Members, a major driver of economic uncertainty remains the lack of clarity around the UK’s desired future trading relationship with the EU. Impact of Brexit on Tourism| 3

While some progress is being made by the UK Government, as recognised above, it remains unclear whether or not UK businesses will continue to have full access to the EU Single Market, or benefit from harmonised regulations that enable businesses to operate more easily across borders. 3.6.

Much of the regulatory environment that the travel industry operates within is predicated on mutual recognition and cooperation between Member States. Therefore, it is important that detail is given on how the Government will seek to ensure these mutual elements of regulations are maintained. For example, how will the UK Government seek to ensure continued cooperation between UK and EU consumer protection or enforcement bodies in cases of cross-border disputes, where these rules are currently stipulated by EU regulation? Further, the continuation, or otherwise, of the UK’s position within the EU Customs Union is another important matter for travel businesses, as this enables companies to access harmonised rules in relation to taxation.

3.7.

While ABTA understands the Government will not wish to divulge information while preparations for negotiations are underway, and with Article 50 yet to be invoked, it is important for businesses to be given, as quickly as is feasible, a more detailed understanding of the UK’s preferred outcome in terms of a future trading relationship with the EU. This will enable businesses to begin the detailed process of planning any necessary operational changes they might need to undertake to continue operating in the most suitable manner.

Liberalised transportation markets 3.8.

ABTA urges the Government to prioritise continued access to liberalised aviation markets (and for other transport modes) in Europe and globally.

3.9.

A strong aviation industry is vital for the UK’s international connectivity and economic wellbeing. ABTA believes the UK Government must prioritise protection of the UK airlines’ liberalised access to European and global aviation markets. Joint research conducted by ABTA, the AOA, Tourism Alliance and UKinbound demonstrates that aviation is worth over £52 billion a year to the UK economy and shows the strong links that exist between UK tourism and aviation, highlighting in particular the increased value of visitors arriving in the UK by air in terms of net spending within the UK5.

3.10.

The EU has one of the most liberalised aviation markets in the world, and the UK has long been a driving force in its creation. Since the Single European Act 1986, there have been a number of regulatory moves to eliminate barriers and commercial restrictions, and to transition towards a fully integrated aviation market place. In particular, Regulation 1008/2008 on common rules for the operation of air services in the community, which has its legal basis in Article 100(2) of the TFEU, sets a number of operational freedoms for community airlines. These operational freedoms include the ability to fly without restriction between any two destinations within the community, regardless of the airline’s Member State of establishment, including on domestic routes.

3.11.

UK consumers have benefited enormously from the removal of commercial aviation restrictions. Consumer benefits have been most obvious in an increasing choice of air carriers, furthered by the creation of the no-frills airline model, new routes, and decreasing air fares. The European Commission notes that, across the EU, aviation’s share of the

5

Tourism and Aviation 2015, ABTA, AOA, Tourism Alliance and UKinbound

Impact of Brexit on Tourism| 4

passenger transport market has increased from 6.5% to 9% in the period 1995-2013, while passenger kilometres travelled by air have increased by 68% over the same period (compared to 20% across all transport modes). Further, the EU has a number of external aviation agreements with third countries, which secure access to aviation markets for community airlines across the world. Most notable of these is the EU-US Open Skies Agreement, which enables EU airlines to operate routes to the US and vice-versa. If the UK were to leave these agreements, it is essential that the Government replicates these as speedily as possible, prioritising those routes where significant traffic is at stake, and that transitional arrangements are put in place to ensure flights can continue to operate in the intervening period. 3.12.

In addition to aviation, ABTA would also support the continuation of similar liberal access arrangements across all other transport modes, notably road transport, where a high degree of liberalisation of passenger services has also been achieved.

3.13.

Across other transport modes, the ONS records that nearly 11 million outbound trips from the UK to EU countries began via the Channel Tunnel or other sea routes in 2015, with nearly 9.9 million arrivals into the UK by these same routes.

The tourism employment market 3.14.

ABTA urges the Government to ensure sufficient access to EU employment markets is maintained to enable operational consistency for UK travel and tourism businesses. For example, enabling travel businesses to continue the practice of posting workers overseas for temporary periods.

3.15.

ABTA believes the Government should seek to maintain sufficient access to EU employment markets to enable travel and tourism businesses to operate in a consistent manner postdeparture, recognising that many travel businesses rely upon a high percentage of EU nationals within their workforce.

3.16.

Across the travel and hospitality sectors in the UK, People1st note that 24% of the workforce is made up of EU nationals. This dependency increases dramatically in certain regions, with London’s hospitality sector’s workforce consisting of around 64% EU nationals. The tourism and hospitality sector has already been identified as having a major skills challenge over the next decade, during which period it is already anticipated that more than 1.3million additional workers will be required6.

3.17.

It is clear that any restrictions on employing EU nationals would place a serious strain upon the UK’s travel and tourism industry. It is far from clear that businesses could replace these workers easily if restrictions on the ability to recruit from EU Member States were introduced, and any restrictions for businesses in the ability to recruit non-UK EU nationals would likely result in increased employment costs for businesses, which would ultimately lead to higher prices for consumers. ABTA believes that, in light of the economic value of the sector and the recruitment challenges identified, tourism should be considered favourably by Government should any steps be taken to enable certain industry sectors preferential access to EU labour markets.

3.18.

ABTA would also particularly draw attention to the vital importance of the Posted Workers Directive in the operational delivery of UK travel businesses, which enables travel businesses to

6

People1st 2015 – Migrant workers in the hospitality and tourism sector and the potential impact of labour restrictions

Impact of Brexit on Tourism| 5

temporarily place workers in other EU Member States without the need to register individuals in each territory for the purposes of taxation or social security (Directive 96/71/EC). Many tour operators, especially SMEs and those without registered businesses in other EU countries, rely on this EU regulation to reduce red tape and simplify their operations across the EU. The millions of UK holidaymakers within the EU each year also take comfort from the ability to seek help from an English speaking representative in their resort. The removal or restriction of these employment rights would represent a substantial burden for UK travel companies, harming their ability to compete with European competitors and significantly increasing operating costs and complexity. ABTA strongly believes that these employment rights should be retained in negotiations with the EU on a future trading relationship. Visa-free travel 3.19.

ABTA urges the Government to ensure the continuation of visa-free travel between the UK and EU countries, whilst ensuring that other practical barriers to travel are avoided. In particular, the Government must seek to urgently address the issue of future border arrangements between Northern Ireland and the Republic of Ireland.

3.20.

ABTA believes the continuation of visa-free travel for leisure and short-term business travel, at a minimum, is essential to the UK travel industry, and UK travellers and also carries clear benefits for our European partners, many of whom have local economies that rely heavily upon UK tourists. The ability to travel across the European Economic Area (EEA) without onerous border checks significantly improves passenger experience, for both inbound and outbound visitors, making travel more attractive and reducing delays.

3.21.

While the UK has never been part of the EU Schengen Area, which enables border-free travel across much of Continental Europe, the UK does apply the principle of freedom of movement to citizens of EEA countries and those from Switzerland. Therefore, EEA and Swiss citizens are free to travel to and from the UK on the same basis as UK nationals, being subjected only to relatively light-touch immigration and security measures. In practice, this amounts to an identity and security check at the UK border. The same principle also applies for UK travellers when travelling to these areas.

3.22.

If more onerous checks were to be required owing to tightened immigration rules, for example, this would place significant strain on the immigration services, and would likely lead to the necessary revision of current targets for processing people at UK borders. In particular, it is difficult to see how the Port of Dover, or juxtaposed checks at Calais (allowed under the Le Touquet agreement), which are already stretched at peak times with limited resilience in cases of extraordinary circumstances, could deal with the requirement to conduct more thorough immigration checks on EEA travellers whilst processing the same number of people.

3.23.

Further, the use of e-Passport gates, which has been heavily promoted by the UK Government as a way of speeding immigration checks for low-risk travellers, including those from EEA countries, would likely need to be revised in such circumstances that EEA nationals are required to undertake more thorough checks. This is because it is not possible for these e-border operations to ask further questions as to the motivation for travel; they are simply designed to check an individual’s identity against the information stored in their biometric travel document, and ensure they are not on any relevant security check-lists. Any tightening of policy in this area would likely require significant operational changes and investment from UK ports and airports in terms of their security halls, potentially costing millions of pounds and causing significant operational disruption.

Impact of Brexit on Tourism| 6

3.24.

It has also recently been reported that the EU is considering the introduction of an electronic scheme of authorisation for citizens arriving in the Schengen area from countries where visa waiver programmes are in place. While the full detail of these arrangements is currently unclear, including whether any scheme would be applicable to UK post-departure, ABTA would ask the UK Government to work closely with our European partners throughout the departure process to ensure that any potential barriers to travelling between the UK and the EU are minimised.

European Health Insurance Card 3.25.

ABTA urges the Government to secure the UK’s continued participation in the European Health Insurance Card (EHIC) scheme, which guarantees UK travellers access to health care systems across the EU.

3.26.

ABTA believes the European Health Insurance Card (EHIC) has been a major benefit for UK travellers, and asks that the UK Government ensure the continued participation of the UK healthcare system within the scheme. In total there are just under 26 million EHIC cards in circulation within the UK, according the European Commission7.

3.27.

Obtaining an EHIC guarantees the holder access to local healthcare systems in the case of an emergency on the same terms as locals in all signatory countries, and enables the local healthcare system to seek reimbursement of treatment costs from the Member State of the national involved. Importantly, however, the EHIC card is not a substitute for purchasing adequate travel insurance and ABTA frequently works with other stakeholders to raise awareness of this fact.

3.28.

While the EHIC scheme is open to some non-EU countries, currently those within the EEA, it is tied into EU Regulation (1408/71; 883/2004), and therefore it seems likely the UK will need to negotiate the UK’s continued participation in the scheme.

3.29.

It is worth noting that the UK does also hold reciprocal healthcare agreements with a number of other countries, including Australia. Therefore, the principle that these types of arrangements are beneficial for UK travellers, and those of other countries, is well recognised. However, with the EHIC scheme being tied closely to the EEA, and the importance of the acceptance of the EU’s fundamental four freedoms within this grouping, ABTA believes it would be wrong to simply assume that the UK’s EHIC participation will continue unless this outcome is negotiated.

Future regulatory structures 3.30.

ABTA believes the Government must ensure it fully explores, as part of the development of the future UK-EU trading agreement, how the best regulatory systems for the UK travel industry can be delivered once the UK has left the EU.

3.31.

ABTA believes the UK Government should fully consider the regulatory impacts on UK travel and tourism when making any decision on a future trading deal. For example, if the UK were to agree to join the EEA, with countries such as Norway, this would in all likelihood secure a high level of access to the EU Single Market, but it would also be likely to severely restrict the ability of the UK Government to review the application of EU travel industry regulation within the UK, and to influence the application of future EU regulation.

7

European Commission, EHIC Questionnaire 2015

Impact of Brexit on Tourism| 7

3.32.

The ability of the UK to control the regulatory systems applicable to UK travel businesses and consumers could be a valuable outcome of the UK leaving the EU. Therefore, it is imperative that any restriction on that should only form part of any future trading deal where it is in the best interests of the UK travel industry.

3.33.

Whichever individual pieces of EU legislation the UK Government elects to retain, amend, or remove over time; it will be important to take full account of the regulatory regimes applying to UK travel businesses in their cross-border operations. Where possible, the UK Government must seek to avoid harming the competitiveness of the UK travel sector by ensuring that any UK-specific regulations do not overlap where EU rules continue to apply (for example, by virtue of a business operating on EU territory).

4. The EU Customs Union, taxes and tariffs 4.1.

For UK travel businesses operating cross-border within the EU, the future of import and export duties, as well as cross-border taxation will be a major consideration. Currently, the EU Customs Union requires Member States to apply common tariffs when importing or exporting, and cooperation in the area of taxation allows businesses to deal with a single tax jurisdiction for many of their cross-border operations and to avoid additional duties. The UK’s continuation within these regimes, or shape of these regimes once the UK has left the EU, is far from certain and is intrinsically linked to the outcome of a future UK-EU trading deal.

4.2.

In the event the UK leaves the Customs Union, ABTA believes it is important that any imposed border checks or levies are kept to an absolute minimum, and preferably that a comprehensive free trade agreement be struck with the EU in the shortest possible timeframe. In terms of immediate priorities, ABTA is asking the UK Government to ensure that, as a minimum, transitional arrangements are agreed to ensure that UK businesses do not face prohibitive tariffs when exporting or importing goods in any period between the UK exiting the EU and the signing of a future trading agreement.

4.3.

The EU VAT Code requires harmonisation around exemptions, the levying of VAT on certain goods and services, and the existence of limited bands of VAT (reduced and standard). Outside of the EU, the UK would have the ability to set VAT rates independently from the EU harmonised system, but this would not necessarily result in a lower rate being charged for individual industry sectors. For example, the UK Government has always retained the ability to allocate tourism services to the lower banding rate, and thus reduce VAT costs for tourism related businesses, but has chosen not to do so. Several other EU Member States apply a lower VAT rate for tourism services, notably Ireland which applies VAT at 9% for tourism services.

4.4.

For businesses, harmonised EU VAT collection rules apply when importing or exporting goods and services, saving significant time and resource for UK travel businesses. If the UK were to fall outside of EU VAT collection rules, the connected process changes could create an additional, and significant, burden to cross-border trade.

4.5.

ABTA believes it is important that the tax impacts of any future UK-EU trading deal are minimised and, should a future trading arrangement be negotiated separately from exit, travel businesses would strongly favour transitional arrangements enabling UK businesses to remain within the EU VAT area for the duration of negotiations. Further, as EU destinations will still form a significant proportion of the outbound UK travel industry’s market, any future changes Impact of Brexit on Tourism| 8

to EU legislation in this area will impact the industry. The UK Government must take account of how the EU VAT system taxes the travel industry, as operating a UK VAT system in isolation could result in UK businesses being exposed to double taxation. 4.6.

The EU’s special VAT scheme for travel agents, often referred to as the Tour Operators’ Margin Scheme, in short ‘TOMS’, was introduced for the first time in the main EU VAT Directive in 1977. This special scheme should be applied to transactions carried out by tour operators who deal with customers in their own name and who use supplies of goods/services provided by other persons. In such cases, the margin that is calculated as the difference between the total amount (exclusive of VAT) to be paid by the traveller and the actual cost to the travel agent is subject to VAT.

4.7.

The objectives of TOMS are twofold; firstly, the special scheme should ensure a correct sharing of the total tax (VAT) revenues between the place where the travel agent is established and that where the underlying supply of services (e.g. accommodation, transport, guides, etc.) is made; and secondly, that the special regime is a simplification measure designed to avoid tour operators having to register for VAT in every EU Member State where the underlying supplies take place.

4.8.

ABTA believes it is important that the tax impacts of any future UK-EU trading deal are minimised. As with VAT generally, should transitional arrangements be required, we would favour these in order that UK travel businesses can remain within TOMS during negotiations. 5. Opportunities

5.1.

The following are regulatory opportunities that ABTA has identified in relation to the UK leaving the EU. The ability to take advantage of each of these will, to varying extents, be dependent on the future trading agreement reached between the UK and the EU, and whether or not the UK remains within the current regimes for tax purposes.

UK financial protection for holidays 5.2.

ABTA believes that consumer financial protection in the travel industry is positive for consumers and businesses alike, with such schemes as the Air Travel Organiser’s Licensing scheme (ATOL) and the Package Travel Regulations (PTRs), playing a vital role in underpinning consumer confidence in the industry. The UK has had consumer financial protection schemes in place since the early 1970s, and ABTA would wish to clearly place on record our continued support for the existence of consumer financial protection within the industry.

5.3.

However, once the UK has left the EU, should UK businesses no longer be subject to the rules of the EU internal market, or a specific or sector-led exemption be agreed, it could be possible to revise the UK’s current system of financial protection for holidays. For example, this might enable the UK scheme to incorporate business models not included in the EU’s revised Package Travel Directive (e.g. Flight Plus), to adopt a different model or regime of protection.

5.4.

Consumer financial protection is particularly pertinent, as the EU’s recently revised Directive on Package Travel and Linked Travel Arrangements (2015) is in the process of being implemented into UK law. Implementation must be completed by 1 January 2018. This timeline means the UK will be legally obligated to implement the Directive before it Impact of Brexit on Tourism| 9

departs the EU, and ABTA believes it is prudent this implementation process proceeds without delay given it remains possible UK businesses will be subject to the regulation postdeparture. 5.5.

ABTA’s consultation with its Membership over the summer has shown a strong degree of support for the existing schemes of protection within the UK. Therefore, ABTA believes the UK Government should commit to undertaking a formal review of this legislation shortly after the UK’s departure from the EU. A review clause, which we believe should be a formal part of the implementation process, would recognise and demonstrate the UK’s commitment to implementing EU laws until the point of departure, whilst also committing the Government to exploring whether or not regulatory advantages could be obtained for UK businesses once the UK has left the EU.

Air Passenger Duty (APD) 5.6.

Currently, the UK is required to charge APD on all domestic flights within the UK in order to comply with EU rules around discrimination against other EU nationals (as a departure based levy, domestic passengers ‘depart’ UK airports twice). Outside of the EU, and if the UK is no longer required to comply with the principle of equal treatment of all EU citizens, it would be possible to remove this double-charging, applying APD only once (e.g. on the outbound leg). The UK Government could also consider a complete domestic exemption.

5.7.

ABTA recognises that to achieve this policy objective the UK Government would be required to work closely with the Scottish Parliament, following devolution of APD to the Scottish Parliament in 2016. We would urge discussions to be held between the respective officials prior to the UK’s departure from the EU, enabling action to be delivered quickly once the UK’s departure has been agreed.

Air passenger rights regulation 5.8.

While airlines operating within the EU would still be bound by Regulation 261/2004 on flights departing EU airports, the UK leaving the EU could allow the UK Government to adopt UK specific rules for flights departing the UK.

5.9.

ABTA recognises that consumer protections in this area are well understood, and highly valued by UK consumers. However, while we do not advocate the repeal of this regulation, it is already recognised within Europe that the existing legislation is unclear, particularly in relation to what constitutes an extraordinary circumstance, and that it has not always been applied in the intended, or a proportionate, manner. An existing review of the Regulation 261/2004 has been delayed in Europe owing to a dispute over the applicable status of Gibraltar within the legislation between the Spanish and UK Governments. We would urge the Government to undertake an urgent review post-departure, to ensure that a UK version of 261/2004 achieves a workable solution for consumers and businesses.

State aid on air routes 5.10.

Within the EU, the UK is currently limited in terms of state aid provision to support air routes. Once the UK has left the EU, the UK Government might have greater freedom to financially support new or strategic routes, such as regional connections to hub airports. However, greater freedom in the arena of state aid is likely to be closely linked to the outcome of the UK-EU negotiations on applicability of EU competition law, which is often Impact of Brexit on Tourism| 10

applied as a condition of access to the EU Single Market. In addition, the WTO’s rules do apply some state aid provisions. Scrapping VAT on tourism services 5.11.

The UK currently retains the ability to reduce the VAT rate charged for tourism services within the parameters set by the EU’s harmonised VAT rules. However, outside of the EU, the UK would, at least theoretically, have the option of abolishing VAT in this area altogether.

Duty-free sales 5.12.

It is possible that in exiting the EU, the UK could once again benefit from duty-free sales. However, while lower duty levels would be applicable, in all likelihood so would much lower limits on the amount of duty-paid goods that could be imported to the UK from the EU (and vice-versa). If the UK remains in the common VAT area, the ability to reintroduce duty-free sales would be lost.

Further information For further information please contact Luke Petherbridge, ABTA’s Public Affairs Manager, on [email protected] or +44 (0)20 3117 0578.

26 October 2016

Impact of Brexit on Tourism| 11