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Could tax-free shopping finally be reinstated?

Lauretta Roberts
05 February 2024

Reinstating tax-free shopping could "allow the UK to recapture tourist spend which has leaked across the Channel", according to New West End Company CEO Dee Corsi, following news that Chancellor Jeremy Hunt has finally agreed to reconsider the Government's decision to withdraw it.

The Office for Budget Responsibility (OBR) has said it will examine the costs and benefits associated with then Chancellor Rishi Sunak’s 2020 decision to remove the scheme that allows tourists to shop VAT-free when visiting the UK.

Retailers and trade bodies have argued that Sunak's decision was based on flawed data and has handed a huge boost to rival European tourist centres, such as Paris and Milan, making them far more attractive destinations for wealthy tourists shopping for luxury goods in particular. However the benefits stretch beyond luxury goods and into the wider retail space and into areas such as hotels and hospitality.

Richard Hughes, Chairman of the OBR, said the government spending watchdog would publish its conclusions alongside the Budget on 6 March "in the light of subsequent evidence on international visitor numbers and their consumption patterns and the analysis carried out by a number of outside bodies".

The British Chamber of Commerce (BCC) teamed up with the Federation of Small Businesses (FSB) and Oxford Economics to help quantify the benefit of reintroducing the scheme. Its study revealed that reintroduction of tax-free shopping would generate an increase in economic activity of £4.1 billion.

The group wrote a letter to The Sunday Times at the weekend to highlight their findings, calling for an end to the so-called "tourist tax".

"It’s been two years since government scrapped tax-free shopping for tourists. Today we have partnered with the Federation of Small Businesses (FSB) to highlight the impact on business and the economy making us less competitive with our European neighbours," the BCC said.

"We have also been working with Heathrow who has seen retail spend drop by 37% compared to 2019 due to the withdrawal of tax-free shopping. We are seeing the same impact across our nations and regions with higher levels of tourism.

"Findings from Oxford Economics show the size of the prize if the Government re-instated a competitive retail tax policy for tourists. It would generate an expected increase in economic activity with £4.1 billion supporting 78,000 jobs."

The New West End Company's Dee Corsi has also been a leading figure in the campaign to have the scheme reinstated and said the development was "a milestone moment".

"The evidence, and calls from business, are clear – tax-free shopping would have a net positive effect on tax revenues and make British businesses competitive once more," Corsi said.

"It is hard to overstate the opportunity in front of us. Reinstating tax-free shopping would allow the UK to recapture tourist spend which has leaked across the Channel, whilst simultaneously making us the largest and closest tax-free shopping destination for 450 million EU residents.

"We already have the infrastructure and reputation to support the influx of spend and footfall that tax-free shopping would bring, and the benefits would be felt across the nation – from regional airports and luxury manufacturing hubs to the West End.

"Reintroducing tax-free shopping presents the Government with a golden opportunity: to inject growth back into the national economy, with a tried and tested scheme which will be delivered by businesses and has cross-party support. We would urge the Government to grab it with both hands."

At the time the decision was made to withdraw the tax free shopping benefit, the Government argued that the scheme was too expensive to maintain, costing the Government £2 billion a year, but campaigners have always argued that the benefits to business far outweighed any downsides. The Government's previous calculations were not carried out by the OBR and were said to only take into account the impact of goods eligible for VAT refunds, rather than the boost provided by tourists to travel, hospitality and other parts of retail.

For a brief moment when Kwasi Kwarteng was Chancellor as part of Liz Truss's short-lived Government, it looked like the scheme would be re-introduced, but after Truss was ousted and Sunak instated as Prime Minister, the scheme was again canned.

Business groups have pledged to keep the pressure on the present Government right up until the Budget to ensure the scheme is reintroduced.

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