George Osborne plans to use next week's budget to close loophole that loses exchequer £110m a year
Lawyers for Jersey and Guernsey have begun a last-ditch effort at the high court to block George Osborne's plans to stamp out VAT-dodging practices on websites such as Play.com, Amazon.co.uk, Tesco.com and HMV.com, saving the exchequer more than £110m a year in lost tax. The chancellor plans to use this month's budget to outlaw the VAT-free Channel Islands industry from 1 April, but will rethink if the three-day judicial review goes against him.
Counsel for Guernsey said the Treasury and HMRC had failed to put before the court any evidence that VAT-free shipments of goods bought for less than £15 involved tax avoidance, abuse or impropriety.
This is an argument the UK authorities were desperate not to get into. The reason is that the evidence – and there is plenty of it, say campaigners against the loophole – points to another embarrassing question. Why have the Treasury and HMRC ignored this issue for more than a decade?
The answer appears to be that they previously took quite a different view of low-value consignment relief, or LVCR, as the VAT loophole is known. Indeed, in the face of repeated complaints from struggling high-street retailers, the former Treasury minister Stephen Timms told the House of Commons in 2009: "It is important to underline the fact [that] the arrangements in Jersey and Guernsey are not improper."
As questionable as that assertion might now be regarded, it is hard now for the government – even a new administration – to argue the opposite.
Even on conservative estimates there must have been 40 lawyers squeezed into the crowded court 75 at the Royal Courts of Justice on Tuesday, underlining the commercial significance of this case. Among the few who were not being paid by the hour to be there was John Biggs, an executive at the Romsey printer cartridge suppliers Wellow Business Services.
Biggs first took evidence of VAT-dodging Channel Islands shipments to HMRC in 1998 and he has been writing letters ever since. Initially, HMRC appeared to take him seriously, sending two officials to visit and producing a report into the matter.
Subsequent freedom of information requests seeking a copy of this report have proved frustrating. It is lost, says the taxman.
Increasingly, this looks like a case MPs on the public accounts committee might productively look at.