It would appear that our Chancellor does not understand microeconomics

This should not be taken as a good sign really. Evidence that the person setting the economic policy for the Kingdom doesn't quite understand economics shouldn't be so taken:

Airport retailers could be forced to pass on millions in VAT discounts on duty free to passengers under a review announced by George Osborne. The Chancellor said that it is "simply unacceptable" that some retailers are failing to pass on savings to customers and instead using VAT relief as a "windfall gain".

For the shops don't end up with that extra cash as a windfall or profit. It actually all flows through to the landlord in rent. As it will in any such situation of course.

In fact, it's been said that Heathrow should actually be paying planes to land there they make, as an airport, so much money from funneling people through the shopping areas.

That there's a tax discount, or should be, is true, but given that it is only available on a few select pieces of land then the benefit of it is going to flow through to those who own those few select pieces of land. David Ricardo published 198 years ago: we should all understand this by now.