The Chancellor delivered a huge blow to the West End today when he decided not to restore VAT free shopping for foreign tourists to the UK.
Furious retail and tourism bosses said Jeremy Hunt’s refusal to restore the perk was “staggering” and would leave London hopelessly uncompetitive against rivals cities such as Paris and Milan.
Last month Mr Hunt asked the independent Office for Budget Responsibility (OBR) to carry a review of the policy -officially known as the VAT Retail Export Scheme - head of his Budget.
But today the OBR concluded that the estimates that it made in 2020, ahead of the scheme’s abolition in 2021, “still appear reasonable” despite vigorous lobbying from business leaders.
It estimates that restoring VAT free shopping will cost almost £1.5 billion in lost revenues over the current year and the next two years.
Today’s OBR review says the scheme - widely known as the tourist tax - “largely related to spending in a relatively small number of luxury stores, such as those located in central London and Bicester Village.”
Today’s Budget document said the Treasury was “grateful to the OBR for their review of the original costing of the removal of tax-free shopping.”
It added: “The government will consider these findings alongside industry representations and broader data, and welcomes any further submissions in response to the OBR’s findings,”
Sir Rocco Forte, chairman of Rocco Forte Hotels, said: “‘It is quite staggering that the Prime Minister and the Chancellor have ignored the pleas of over 500 leading businesses representing the retail, hospitality, tourism and arts sectors and refused to scrap the tourist tax.
‘The case for reintroducing tax-free shopping in the UK is clear and overwhelming. As things stand, every country in the EU offers sales tax rebates to tourists while we don’t, meaning the whole tourist economy in the UK is operating with one hand tied behind its back.
“Independent economic analysis shows that scrapping the tourist tax would more than pay for itself because of the tourist spending that would be stimulated in hotels, restaurants, tourist attractions, taxis and the like, with an £11 billion boost to GDP.
“Restoring tax-free shopping would also represent a major Brexit opportunity as the UK would be able to offer savings to a new market of 500 million EU consumers, thanks to our place outside the EU.
“‘This is a spectacular own goal for UK plc. We will now need to persuade Labour as the likely incoming government that reform is a prerequisite for stronger economic growth.”
Steven Medway, CEO of the Knightsbridge Partnership, said: "It is very disappointing that the Treasury has not yet responded to the overwhelming evidence and calls from businesses across Britain about the damage being done by Britain now being the only European country not to offer tax-free shopping to international visitors.
“The Treasury has also not responded to evidence of the massive growth opportunity from making Britain the only major European country where the 450million EU residents could shop tax-free. We continue to call for an independent assessment into the full impact of tax-free shopping. We have not yet had that.
“All the OBR has done is to review its very limited forecasts of 2020 with no account made for the impact of the growth in spending by international visitors across Europe. And has not even mentioned the new EU market potential.
“The Chancellor has stated that "the government is grateful to the OBR for their review of the original costing of the removal of tax-free shopping. The government will consider these findings alongside industry representations and broader data, and welcomes any further submissions in response to the OBR’s findings." We look forward to continuing our discussions with them.”Andrew Hinds, chairman of F Hinds the jewellers, said: ‘It’s extremely disappointing that the Chancellor has not taken action in the Budget to scrap the tourist tax.
‘The message from business could not have been clearer that this move is desperately needed to kickstart economic growth. This goes way beyond a few luxury retailers in the West End of London – we are seeing the impact of the removal of tax-free shopping in our 127 stores in high streets up and down the country.
‘At a time when we should be doing everything possible to boost the economy, sending a message that the UK is closed for business when it comes to tourist spending makes absolutely no sense.’
Anda Rowland, vice-chairman of the King’s tailor, Anderson & Sheppard, said the Chancellor’s failure to restore tax-free shopping was a ‘bitter blow to British business’.
“Small British businesses are really suffering from the fact international visitors aren’t spending. People are simply choosing to shop in Paris, Milan and Berlin rather than here because the VAT rebate has gone,’ she added.
“It’s affecting not just retailers but manufacturers and artisans right down the supply chain. Skills will also be hit as businesses have less to invest. I just wish that the Government would adopt a more welcoming approach to people choosing to come and spend here in the UK.
“It clearly makes no sense that every country in the EU now offers a tax-free shopping scheme for tourists and we don’t. We’re driving tourists who would otherwise be coming here into the arms of our rivals, and the impact will be felt in retailers’ tills, jobs and ultimately economic growth.’
Sacha Zackariya, author of ‘Leading Travel and Tourism Retail’ and CEO of Prosegur ChangeGroup, a provider of ATMs, currency exchange bureaux and tax refund services, said: “The Government has just told thousands of retailers, the tourism industry and workers that they couldn’t care less about them, and condemned Central London to dozens more American candy stores.
“The tourist tax is killing jobs and sucking £11.1bn out of the economy as tourists enjoy VAT-free shopping in the likes of Paris, Milan, and further afield. I just arrived back from a round-the-world trip where I saw the amazing things shopping meccas are doing to attract tourists, and the contrast with the UK is demoralising. If we can’t get this right, what chance do we have of competing with the countries that actually welcome tourists? This was the Government’s last chance saloon to move on this before the election. If Labour are serious about growing the economy, I hope they’re taking note.’
Trevor Pickett, founder of luxury goods retailer Pickett, said: ‘This is very bad news for the whole UK economy. Retailers, hospitality venues, tourist attractions, even taxi drivers will all suffer from the lost tourist spending.
‘I saw the impact myself on a trip to Paris the other day when I spent £500 in Zara – with the sales tax back, I saved £100 and got two shirts for free. Before I wouldn’t have bothered to make such a purchase but now there’s a massive financial incentive to do so.
“The UK must be completely mad to be forcing people to pay 20 per cent more than they have to in the EU for the exact same goods. We have to hope that Labour realises that scrapping the tourist tax is a win-win for economic growth and the public finances and chooses to act.’
Scott Parsons, Chief Operating Officer, UK at Unibail-Rodamco-Westfield, operator of the two Westfield malls, said: “Today’s Budget is an utter disappointment for the retail and property sectors, with no significant announcement on business rates and no U-turn on tax-free shopping for tourists. These are clear missed opportunities especially in this all-important election year.
It’s deeply frustrating that calls from over 500 sector leaders to halt the tourist tax have been ignored, despite the compelling data which demonstrates the critical importance of tax-free shopping for the UK economy.
“What’s more, the existing business rates system places our high streets at a massive disadvantage compared to those in other European cities, with UK retailers shouldering a financial load nearly ten times more than brands on the continent. Permanently lowering rates is the most meaningful way to support the sustainable, long-term growth of the retail industry and show the world once and for all that the UK is open for investment.
“While Hunt has failed to deliver for the industry, in contrast, the Labour Party’s newly unveiled strategy to revitalise Britain’s high streets holds great promise. By pledging to overhaul the outdated business rates system, Labour is signalling a more encouraging future for the sector.”
In a statement the Association of International Retail, said: “It is very disappointing that the Treasury has not yet responded to the overwhelming evidence and calls from businesses across Britain about the damage being done by Britain now being the only European country not to offer tax-free shopping to international visitors.
“The Treasury has also not responded to evidence of the massive growth opportunity from making Britain the only major European country where the 450 million EU residents could shop tax-free.
“We continue to call for an independent assessment of the full impact of tax-free shopping. We have not yet had that.
“All the OBR has done is review its very limited forecasts for 2020 with no account made for the impact of the growth in spending by international visitors across Europe. And has not even mentioned the new EU market potential.
“The Chancellor has stated that "the government is grateful to the OBR for their review of the original costing of the removal of tax-free shopping. The government will consider these findings alongside industry representations and broader data, and welcomes any further submissions in response to the OBR’s findings." We look forward to continuing our discussions with them.”
Kay Buxton, chief executive of Marble Arch London BID, said: “Although shopping accounts for 46% of all tourist spending, 54% is spent on hotels, eating out, and visitor attractions so it is frustrating that the Chancellor has again ignored widespread calls from industry experts to remove the tax of spending for international visitors.
“Independent research suggests that removing the tax on tourist spending would have led to an extra £3bn being spent on hotels, restaurants, retail, and visitor attractions by overseas visitors. The introduction of taxing tourist spending has damaged the international appeal of the UK for international visitors, so this is another missed opportunity by the Chancellor, which would have provided a much-welcomed boost for hospitality and the visitor economy.”
