Retailers have made a last-ditch attempt to persuade Chancellor Jeremy Hunt to axe the UK’s tourist tax in the upcoming Budget, with new evidence suggesting that reintroducing tax-free shopping will spark a £2.8bn tourism boom.
New West End Company and the Association of International Retail (AIR) has submitted evidence to Downing Street this week refuting the Treasury’s assumption a reintroduction would cost £2.5bn in forgone tax revenues, The Telegraph reported.
The new evidence, based on detailed spending data collected from retailers, suggest that the amount of lost VAT would be one fifth of the Treasury’s projection because EU visitors spend less money on shopping than on hotels, leisure and dining out.
The AIR notes that the Treasury’s original forecast was based on the assumption that the tourist tax has little or no impact on how international travellers behave or where they decide to go on holiday.
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Its analysis shows that the cost of lost VAT is likely to be closer to £525m based on how tourists from inside and outside the EU spend their money.
Data submitted by the New West End Company and PwC shows that in 2019 just 11% of international spending came from EU visitors – a figure that remained broadly steady in 2023.
AIR chief executive Paul Barnes said: “The Treasury’s original forecasts were made during the 2020 Covid lockdown when there was no travel data available to help inform them. But now we have masses of new data that shows the impact of tax-free shopping on the behaviour and spending levels of international travellers.
“So it is good news that both the Treasury and the OBR are examining these forecasts in light of the new data. We are confident that the evidence shows that tax-free shopping is good for British businesses, good for the economy and good for the Exchequer.”
A HM Treasury spokesman said: “We keep all taxes under review and recognise the value that retailers bring to Britain. That is why we announced a £4.3bn business rates package at Autumn Statement to support businesses and the high street.
“VAT-free shopping remains available for all non-UK visitors buying items in store and having them sent directly to their overseas address.”
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