The removal of tax-free shopping for foreign visitors is deterring two million tourists a year from visiting the UK and costing £11.1 billion in lost GDP, a new report claims today.
The latest research suggests that the wider loss to the UK economy of closing the tax perk is £2.5 billion more than any gain in VAT revenues making it a major “own goal” for a Government desperately trying to kick-start growth.
Analysis by the respected forecasters the Centre for Economics and Business Research (CEBR) concluded that visitors numbers and spendng - though recovering - would have bounced back far more quickly with VAT-free shopping still in place.
CEBR Managing Economist Sam Miley said: “The data for Q3 showed that 2023’s summer tourism season was the strongest for a number of years, albeit still falling short of pre-pandemic levels of activity. Our analysis suggests that the operation of a tax-free shopping scheme would have helped to close this gap, by encouraging greater visitor numbers and expenditure and producing impacts down the retail supply chain.
"Furthermore, the boost to public finances that could result from the scheme should be of interest to policymakers, particularly as the Chancellor prepares for the upcoming Spring Budget.”
The report came as 420 business leaders representing firms in hospitality, retail, luxury, travel, tourism and the arts signed an open letter to the Chancellor organised by hotelier Sir Rocco Forte arguing that the move has made the UK the most expensive place to shop in Europe, with every country still in the EU still offering sales tax rebates to foreign shoppers.
Signatories included the bosses of Marks & Spencer, Heathrow, Gatwick, Primark, Burberry, Mulberry, the British Fashion Council, Shakespeare’s Globe, the Royal Academy of Arts, the Royal Opera House, Lord Lloyd Webber, and Victoria Beckham.
Jeremy Hunt promised at the Autumn Statement to ‘look again at the numbers’ although a full U-turn is thought unlikely.
Sacha Zackariya, CEO of ATMs and currency exchange bureaux company Prosegur ChangeGroup, which commissioned the research, said: “The Government is shooting itself in the foot with the tourist tax, sucking inbound spending out of the economy when it is desperately needed to support growth and jobs. It was ludicrous to introduce this penalty on the sector just as it desperately needed to recover from the pandemic, and it has held back thousands of businesses who rely on tourism. This damaging tax must be eradicated at the Budget in March and the previous simple tax refund solution brought back before this summer’s Olympics in Paris.”
The Treasury has argued that most foreign tourists visit the UK for reasons other than shopping, only a minority take advantage of the scheme and that tourism has thrived in countries that do not offer tax free shopping.
