Chancellor Jeremy Hunt has asked the Office for Budget Responsibility (OBR) to look into whether the scrapping of VAT-free shopping – also known as the tourist tax – should be reversed.
Hunt has asked the OBR to “examine the costs and benefits” of the scheme, which Rishi Sunak decided to end in 2020.
The results of the review are set to be unveiled alongside next month’s Budget, The Sunday Times reports.
Retail leaders have blasted the government’s decision to ditch the scheme, which allowed international visitors to reclaim VAT on purchases, as they claim it puts the UK at a disadvantage compared to other European destinations.
A report by the Centre for Economics and Business Research (CEBR) found that the tourist tax is costing the UK £11.1bn and deterring around 2m foreign visitors per year.
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Mulberry highlighted the tourist tax as the reason why its UK sales fell over the golden quarter.
The luxury brand also said the tax as the reason for it closing its Bond Street store last year.
Watches of Switzerland Group chief executive Brian Duffy revealed last year that performance at the brand’s showrooms in Heathrow and Gatwick were still only “40% to 50% of what it was” while Harrods MD Michael Ward said it had been forced to “reshape the whole of the price architecture” in its airport stores.
The Treasury has estimated that reintroducing VAT-free shopping would cost the Exchequer £2bn, however, Hunt is under increasing pressure to do so.
Last week it emerged a cross-party group of 64 MPs and peers have written to the Chancellor urging him to bring back tax-free shopping for overseas visitors.
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