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Retailers launch last-ditch attempt to get Hunt to scrap tourist tax

Luxury shops in London's New Bond Street
Luxury shops in London's New Bond Street - Dan Kitwood/Getty Images

Retailers have launched a last-ditch effort to persuade Jeremy Hunt to scrap Britain’s tourist tax in the Budget with the most detailed evidence yet that removing it will spark a £3.8bn tourism boom.

The Association of International Retail (AIR) and New West End Company, which represents retail businesses in London’s key shopping areas, submitted fresh evidence to Downing Street this week contradicting Treasury assumptions that reinstating VAT-free shopping will cost £2.5bn in foregone tax revenues.

Its evidence, based on detailed spending data collected through its network of retailers, suggests that the amount of lost VAT will be just one fifth of the Treasury’s projection because EU visitors spend less money on shopping than on hotels, leisure and dining out.

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The AIR notes that the Treasury’s original forecast was based on the assumption that tax-free shopping has little or no impact on how international travellers behave or where they decide to go on holiday.

Its analysis shows that the cost of foregone VAT is likely to be closer to £525m based on how visitors from inside and outside the EU spend their money.

Data submitted by the New West End Company and PwC shows that in 2019 just 11pc of international spending came from EU visitors, a figure that remained broadly steady in 2023.

The Treasury assumes that extending VAT-free shopping to EU visitors would increase the cost of the policy. However, Swiss payments company Global Blue has previously estimated the average refund for EU visitors in comparable markets can be up to 60pc lower compared with non-EU shoppers.

There is also clear evidence that visitor spending in countries such as France — where tax-free shopping remains — recovered much faster than in the UK after lockdown.

The AIR believes tourists are shunning the UK in favour of the Continent.

It said reintroducing VAT-free shopping for all would spur increased EU visitor numbers would increase spending “result[ing] in a net positive fiscal impact of £475m+ in VAT receipts alone”.

Taking into account the indirect impact on the economy, the boost could be as much as £3.8bn per year, its analysis shows.

Mr Hunt has pledged to look again at the policy ahead of the March 6 Budget, admitting last year that “we can see what has happened to comparative shops in Paris and Milan.”

The Chancellor has asked Britain’s tax and spending watchdog to review the policy and whether Treasury assumptions about its costs are correct.

While this has raised hopes that the Chancellor is poised to scrap the tourist tax, retailers and Whitehall sources are playing down any imminent change in policy.

Paul Barnes, the chief executive of the AIR, called for immediate action. He 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.”

Tom Athron, the chief executive of Fortnum & Mason, said: “The evidence now shows that reinstating tax-free shopping would be a win for both business and the tax-payer. Enough waiting, this just needs to happen now if we’re to have a chance of competing with the great cities of Europe this summer.”

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 £4.3 billion 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.”