Senior Conservative MPs including Sir Jacob Rees-Mogg and the party’s former leader Iain Duncan Smith are urging the government to bring back instant VAT rebates for visitors from overseas.
Retailers, hospitality businesses, tourism bosses, airport operators and now politicians are lining up to support the reinstatement of tax-free shopping for tourists ahead of the Budget in March.
Chancellor of the Exchequer Jeremy Hunt ordered the Office of Budget Responsibility to conduct a cost/benefit analysis of scrapping the Tourist Tax earlier this month.
VAT rebates were axed as part of the Brexit agreement signed by then prime minister Boris Johnson in January 2020.
Liz Truss committed to restoring the rebates during her brief premiership, but that plan was abandoned when Rishi Sunak and Mr Hunt moved into Downing Street.
Momentum is building for a potential U-turn by the chancellor as analysts suggest it is costing the country far more than the taxes VAT paid by visitors to this country raises.
Until now, the Treasury has insisted reinstating VAT rebates would cost over £2 billion, but a report by the Centre for Economics and Business Research estimates the tax is costing the wider economy more than £11 billion per year as wealthy tourists divert to other European cities such as Paris and Milan.
Sir Jacob Rees-Mogg is siding with the campaigners to scrap the tax. “If the Treasury took a more dynamic approach, they would realise that this tax costs both the economy and the Treasury money,” he said this week.
Sir Iain Duncan Smith agrees. “If you talk to hotliers, their takings are down. If you talk to restaurants in those key areas, their takings are down. It’s the same with theatres. Our loss is Paris’s gain,” he suggests.
Watches of Switzerland Group, which saw sales in the UK (including its comparatively small European business) drop by 7% in its November 2023 to January 2024 quarter, has welcomed news that the Treasury has ordered a cost-benefit analysis of reinstating VAT rebates for foreign visitors to the UK.
“We are encouraged by the UK Office for Budget Responsibility’s review of VAT free shopping for tourists; we have not included its reintroduction into our guidance,” the company states in its latest financial update.
350 business leaders, including heads of BA, Marks & Spencer, Harvey Nichols, Primark, Jigsaw, Kurt Geiger, Heathrow, Gatwick, Burberry, and Mulberry have been campaigning for the reinstatement of VAT-free shopping.
Within the CEBR report, WoSG CEO Brian Duffy says: “This evidence is even more compelling than I anticipated. It is simply irresponsible of the Government not to give this full consideration. We are aware from our brand partners and published data that tourist spending is bouncing back in the EU in a way that is simply not happening in the UK, and this is all down to the absence of VAT-free shopping.”
Heathrow Airport has also added to calls for the reinstatement of VAT-free shopping.
In a statement issued yesterday, the airport argues: “Britain has shut the door to home-grown growth, turning away international shoppers through the tourist tax and tarnishing the UK’s reputation as a competitive country to spend and do business with.”
