Hunt looks to revive VAT-free shopping for tourists
Chancellor Jeremy Hunt is reconsidering the decision to end a popular tax relief for tourists which is said to have cost the UK economy billions in lost revenue.
The UK government scrapped VAT-free shopping for international visitors to the UK in 2020 in an attempt to claw back more money for the exchequer.
But business groups have warned that the decision has put the UK at a big competitive disadvantage compared with other shopping destinations across Europe.
Mr Hunt has asked the Office for Budget Responsibility (OBR) to “examine the costs and benefits” associated with Rishi Sunak’s decision to scrap the concession during his time as Chancellor under Boris Johnson.
Richard Hughes, chairman of the OBR, said the government spending watchdog would publish its conclusions alongside the Budget next month.
The review comes “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”, Hughes said in a letter to Conservative backbencher Sir Geoffrey Robert Clifton-Brown.
The rationale behind the decision was that VAT-free shopping was little more than a “bung to millionaire Chinese tourists to get 20% off a luxury handbag”, one Whitehall source said at the time. The Treasury had estimated that restoring VAT-free shopping would cost the Exchequer £2 billion.
However, pressure has been mounting from a number of organisations and business leaders including the British Chambers of Commerce (BCC), the Federation of Small Businesses and airports.
The argument from the BCC is that every sale diverted from British tills to the European continent puts at risk the wages and livelihoods of thousands reliant on retail and the domestic side of its supply chain.
Shevaun Haviland, head of the British Chambers of Commerce, along with Tina McKenzie, advocacy chair of the Federation of Small Businesses, said in an article this weekend: “Hotels, restaurants and attractions right across the UK all benefit from getting tourists through the door.”
Hotels tycoon Sir Rocco Forte, whose business empire includes the Balmoral Hotel in Edinburgh, has led a campaign backed by hundreds of chief executives from the retail, consumer and leisure sectors to persuade ministers to reverse the decision since it was implemented three years ago.
A report published last week estimated that the economy is missing out on an £11 billion boost because of the so-called tourist tax (not to be confused with the tourism tax or visitor levy). This followed official data that revealed a million fewer tourists visited the UK last summer compared with the same period in 2019.
Mr Hunt is also facing a rebellion from Conservative back benchers if he does not back down on the issue. A cross-party group of 64 MPs and peers, 38 of whom were from the Tory party, wrote to the chancellor urging him to introduce a new internationally competitive tax-free shopping scheme for overseas visitors to the UK.
A spokesman for the Treasury said: “We keep all taxes under review and recognise the value that retailers bring to Britain. That is why we announced a £4.3 billion business rates package at Autumn Statement to support businesses and the high street.