The huge advantage gained by retailers located in The Channel Islands causes a distortion of competition. No longer do items carry an equal amount of VAT at any point in the supply chain, as should be the case according to the principles of EU VAT legislation. There is no VAT payable at the point of sale due to the exploitation of LVCR. Retailers who do not have to charge VAT now dominate mail order with 96% of Entertainment retail now based in The Channel Islands.
Whilst the consumer (with access to the internet!) may benefit from lower VAT free prices in the long term the number of retailers is reduced as monopolistic offshore companies develop, UK high street and mail order retail is degraded, mainland jobs are lost and the tax revenue that should have been paid to the UK Treasury ends up in the pockets of private company directors and shareholders. Hundreds of Millions of pounds a year in VAT that would have ordinarily been due on sales to customers in the UK is being lost as those same customers buy from offshore retailers products that have been exported to the Channel Islands in order to avoid VAT.
A common argument for keeping the relief as it stands is that the business generated in the Channel Islands supports the British Post Office and also saves the cost of collecting VAT on import. Such an argument has a number of fairly serious flaws however in that it assumes that online trade would continue from The Channel Islands if VAT was charged on import, which is clearly not the case. The trade would move back onto the UK as it would be of no advantage at all to be based in The Channel Islands. In any case the UK has an obligation to stop the avoidance of VAT and the exploitation of LVCR. From an environmental standpoint, many find it troubling that goods are being flown hundreds of miles to the Channel Islands just to be flown back a few days later in a smaller parcel.
Of course, there are those that suggest we should continue to turn a blind eye to the exploitation that is occurring. The tabloids have for many years championed the concept of ‘Rip-Off Britain’, despite us having the lowest CD and DVD prices in Europe. Many of them, along with their readership believe that the loss of business and jobs in their home country is a price worth paying to save a couple of quid off a CD. That viewpoint seems fairly shallow if you have just lost your job because an offshore retailer has just put your employer out of business.