Retailers and hospitality trade associations are ramping up pressure on Chancellor Jeremy Hunt to reinstate VAT rebates for visitors shopping in Britain, but the signs are increasingly clear that dropping the so-called Tourist Tax is not going to be included in next week’s budget.
New West End Company, which represents 600 retailers, restaurateurs, hoteliers, galleries and property owners in London, and the Association of International Retail (AIR), have submitted a report to the Treasury this week that reintroducing tax-free shopping would trigger an upturn in tourism worth £2.8 billion.
AIR says that Treasury assumptions that led to it calculating that rebates cost the country £2.5 billion in lost taxes are flawed because it was based on the assumption that 20% rebates had little or no impact on how international travellers behave or where they go on holiday.
I side with the retailers and other affected businesses who say tourism and tourist spending has changed beyond anybody’s worst fears.
Simply spending time in Central London over the summer was enough to convince me that the usual tourist hoards had stayed away. The left hand lanes of escalators on the Tube were free for me to speed past those standing on the right.
The pavements of Bond Street and Oxford Street were noticeably quiet and there were far fewer Chinese and Middle Eastern shoppers when I dropped into Harrods or Selfridges.
The only reason retail sales were maintained at anything close to pre-2020 levels is the massive inflation in the cost of everything; most easily seen in the price of hotel rooms and meals out.
I’ve had exactly the same experience in York, Strafford-Upon-Avon, Glasgow and other tourist hot spots. Big spending tourists stayed away last year and I am sure we will see this when company accounts for the period are published. It has already shown up in the results of publicly traded Watches of Switzerland Group and Signet Jewelers.
Despite what I see as compelling evidence for the self-harm that the Tourist Tax has inflicted, I do not believe the Treasury will touch it next week.
The Times reported yesterday that Nigel Huddleston MP, financial secretary to the Treasury, has shared a memo saying that it is not possible to introduce the same system as before, given that it would now need to be open to visitors from the EU as well as well as the rest of the world.
“Any new scheme, no matter the design, would take time to legislate for and implement in order to prevent non-compliance and ensure operation,” he adds.
That’s the Treasury gobbledegook, but he also wrote to campaigners for reinstating VAT rebates with the political argument. “The chancellor has been clear that being responsible for the public finances is a key priority. A new VAT-free shopping scheme could subsidise a large amount of tourist spending that already occurs without a tax relieve in place, without bringing any direct benefits to the British public,” he suggests.
This is a two part argument. First, he is saying that the Treasury does not believe tourist spending has been affected. This leads to him concluding that the tax break would only benefit tourists, not the public.
Wrong on both counts, in my opinion. High-spending tourists have shifted their shopping to Continental cities like Paris and Milan, and these are the cities where the public is benefiting from higher tax takes.
But politics is the art of the possible, and I see no sign that, with a general election looming, the Tories will do anything that looks like it is cutting taxes for wealthy foreigners while we are being squeezed until the pips squeak at home.
No matter how much economic benefit it will bring, axing the Tourist Tax is highly unlikely to happen under this government, and we will have to wait and see whether it might be part of a Labour government’s agenda as it searches for ways to encourage growth.
