Pressure has been piled on the Chancellor ahead of his Autumn Statement by Britain's luxury goods industry, which called for the return of a tax-free shopping scheme as London retailers warned tourists are heading to rival European cities for shopping sprees.
In a letter to Jeremy Hunt seen by the Evening Standard, trade body Walpole's chief executive Helen Brocklebank said: "The loss of the previous scheme has been a hammer blow to some of our country’s best known and most loved brands."
Brocklebank added: "What is more, the impact of this decision has been felt far and wide beyond London; the manufacturing supply chain that the scheme supported stretches from Somerset to Scotland."
VAT-free shopping, which had made UK purchases 20% cheaper for international visitors, was axed in 2021.
Walpole's Brocklebank said that last year spending by non-EU international visitors fell nearly 30% on 2018 in the UK yet in Europe spending by these visitors rose 98%.
She added that the so-called 'tourist tax' has discouraged inward investment in the UK as some global brands are choosing to invest in expansion overseas rather than in the UK, "owing to the more favourable retail environment" elsewhere in Europe.
The boss wants Hunt, who will set out the UK's next tax and spend plan this Wednesday, to introduce a "modern, digital tax-free shopping scheme". That could mean less paperwork and admin than previously used.
An HM Treasury spokesman said the VAT-free scheme could cost British taxpayers around £2 billion a year, "which is money we would need to find elsewhere to help fund".
He added: "Furthermore, fewer than one in ten non-EU visitors used the previous scheme, showing it’s not a significant attraction for tourists.”
A number of brands have listed what they consider some of the detrimental impacts from the "tourist tax".
William Skinner, managing director of Savile Row tailor Dege & Skinner said: "European cities have benefitted and bounced back strongly after the pandemic, whereas the UK is floundering. Shoppers are savvy, they haven't been pushed into paying more for their luxury items, they've just changed where they choose to spend their money now."
Michael Wainwright, managing director of jewellery company Boodles said: "At Boodles, we are skewed towards British people, so it’s not quite as bad for us as it is for others, but the situation is just absurd and has been described by myself and others a spectacular ‘own goal’."
In its latest financial update, Burberry last week flagged the "UK continued to lag Continental Europe in attracting tourism spend compared with pre-pandemic levels, reflecting the withdrawal of VAT refunds in the UK since January 2021".
