Business leaders have renewed their appeal to ministers to restore VAT free shopping for foreign tourists arguing it will deliver a £3.7 billion boost to the economy.
A submission from the Association of International Retail (AIR) points out that scrapping the so called “tourist tax” would put the UK in the unique position of being able to offer 20% rebates to 450 million EU consumers as well as those from the rest of the world.
This would create a “vast new market” and make the London “the global shopping capital.” The rebate is not available to EU based consumers shopping in other member countries.
Rishi Sunak scrapped VAT free shopping in 2021 at the time of Brexit when the perk would have otherwise become available to shoppers from the EU coming to the UK for the first time.
The paper from the AIR claims a U-turn would benefit every region by firing up economic growth. The new EU market alone would create at least 73,000 new jobs.
Hundreds of business leaders, including bosses at Paul Smith, Heathrow, John Lewis, Bicester Village, Mulberry, the Royal Opera House, Shakespeare’s Globe, Fortnum & Mason, Claridge’s, Boodles, Pragnell, Faberge,and The Hippodrome Casino,.are now calling for a rethink on the policy.
They argue that as well as London retailers the entire tourist economy has been affected, including hotels and restaurants, taxis, galleries and museums and as well as regional centres and artisan and luxury manufacturers.
The AIR submission was made to the Department for Culture, Media and Sport which is preparing a new Visitor Economy Growth Plan expected to launch this autumn.
In the UK, visitor numbers had recovered to 96 per cent of their 2019 levels last year, compared to 101.9 per cent in Spain and 100 per cent in France.
The figures on tourist spending are even more stark: in the UK, spending last year stood at 92 per cent of 2019 levels compared to 106 per cent in Spain and 110 per cent in France. Increasingly, some British shoppers are also shunning homegrown outlets and buying items on trips to the EU, where they can now claim a VAT refund.
The AIR paper calculates that if spending on VAT-free shopping by new EU shopping-led visitors to the UK was at the same level as British VAT-free spending in the EU in 2024, there would be a total additional spend of at least £3.65bn.
This would be on top of an estimated £1.5bn of annual spending by non-EU visitors diverted to France, Spain, Italy and other tax-free destinations when VAT rebates were ended.
Based on the British Retail Consortium’s measure that one job is created for every £50,000 of retail spending, introducing a new VAT refund policy for EU visitors could create at least an additional 73,000 jobs across the UK, it says.
Derrick Hardman, chair of AIR, said: ‘With Britain no longer in the EU, we have the opportunity to become the best place in the world for shopping.
“While the 26 EU countries offer VAT-free shopping to non-EU visitors, including those from the UK, Britain is now in the unique position of being the only major European country where this attraction could also be offered to all 450m EU residents.
“This would give Britain an unchallengeable competitive advantage within Europe. In addition to levelling the playing field with our EU competitor destinations who all offer VAT refunds to non-EU visitors, Britain would have the unique opportunity to create a whole new, shopping-led, EU tourism market.
“These would be additional visitors, spending additional money in hotels, restaurants, and on travel, culture and entertainment, all of which generate additional VAT for the Exchequer.
“The Government should work with industry to look again at the impact of VAT-free shopping on the economy and the Exchequer with a view to introducing a new, fully digitalised, fiscally positive scheme for all international visitors to support rapid economic growth throughout the whole of the UK and encourage investment and job creation in the retail, hospitality, leisure, cultural and transport sectors, and support UK high streets.”
Sir Rocco Forte, chairman of Rocco Forte Hotels, said: “It is clear that retail and other trades have suffered hugely thanks to the end of tax-free shopping under the last government.
“We see it with customers at our hotels who used to come laden with parcels. Now they spend less time with us and go on to shop in Paris or Milan.
“This is a huge own goal which could be quickly rectified and boost the economy and the jobs market.
“Restoring tax-free shopping also represents a significant Brexit opportunity as the UK would be able to offer savings to a new market of 450 million EU consumers, thanks to our place outside the EU.
“The UK needs to pull every lever to promote economic growth and this should be top of the list.”
Michael Wainwright, chairman of luxury jewellery brand Boodles said: “We would encourage the Government to look at this urgently, as all the independent analysis that has been done shows that a new tax-free shopping scheme would more than pay for itself thanks to the extra spending that would be stimulated across the economy, not just in retailers but in hotels, restaurants, tourist attractions, taxis and so on.
“It would also mean that the UK would become the only place in Europe where EU shoppers could shop tax-free – a huge opportunity for our economy.”
Andrew Hinds, chairman of F Hinds the jewellers, said: “VAT rebates are only a small proportion of the total spend, but not having them is a mental block which causes customers to take their business elsewhere. If a tourist chooses another country for their shopping trip, the UK collects no tax from them and nor do our businesses and workers benefit from any of the other money they spend while they are here.
“This applies in our major cities and tourist sites, but also across the country as a whole, as many visitors come to visit family and friends.”
