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High spending tourists will abandon the UK if chancellor axes tax-free shopping

Sadiyah Ismailjee
02 October 2020

Lucrative tourists could be set to abandon the UK if the government pushes ahead with its plans to abandon tax-free sales.

The British economy could lose up to £6 billion as retailers urge the Chancellor to scrap his plans to end tax-free sales.

The Centre for Economic and Business Research (CEBR) has published a report focussing on the cost of Chancellor Rishi Sunak’s move to end tax-free shopping from January 1, 2021, which has predicted a net loss for the Exchequer.

Up to £6 billion will be lost to UK businesses due to a fall in tourist numbers and a drop in spending in key regions such as London, Oxford, Edinburgh, Birmingham, Manchester and Liverpool.

The drop in tourist numbers could result in up to 138,000 manufacturing, retail and tourism jobs being axed.

The CEBR's warning draws on the results of a Visit Britain survey of 4,800 overseas travellers, which revealed that 62% would now be less likely to visit the UK as a direct result of the removal of tax refunds for overseas visitors from outside the EU; 93% were also now unlikely to buy goods here.

CEBR said: “This decision makes no sense when both retail and tourism are under the cosh. It will cost the Treasury money – a minimum of £1/4 billion and probably a whole lot more.”

“It will reduce tourism. And it will reduce retail activity draining jobs from suppliers all around the country."

“Instead it would be better to extend the scheme to EU tourists, bringing in nearly a million additional visitors to the UK and boosting tax revenues from the additional income tax, national insurance, corporation tax and VAT on other items of tourism and spending.”

Many brands that manufacture goods in bases throughout the UK have also expressed concern about the impact on jobs both in their stores and factories.

CEO of Mulberry, Thierry Andretta, whose UK factory in Somerset supplies half of the brand's handbags said: “This latest unexpected and short-sighted manoeuvre of the Government will destroy the UK’s ability to remain competitive with Continental Europe and comes at a time when our sector is already reeling from the effects of the Coronavirus pandemic and Brexit uncertainty."

"We believe that the Government needs to be doing all it can to highlight the strengths of the UK and encourage visitors back to our shores, rather than actively discouraging them with rulings like this and encouraging foreign visitors to choose Paris and Milan.”

Prior to the Coronavirus pandemic, international visitors spent almost £28.4 billion in the UK, £2.5 billion of this on tax-free shopping.

Visitors pay VAT on the other £26 billion, raising £5.2 billion for the Treasury. The predicted fall in visitor numbers will eat into the Treasury’s revenue.

However the CEBR highlights that if the government was to extend the scheme to EU visitors after Brexit, economic modelling indicates that visitor numbers would increase by 948,000, tourist spending by up to £890m and an additional 20,200 jobs would be created with net tax revenues rising by up to £276m annually.

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