Is the end of the UK tourist tax in sight? The UK retail industry has been lobbying the government to reverse its support of the tax, and Chancellor Jeremy Hunt is reportedly considering this possibility. The Office for Budget Responsibility (OBR) has been tasked with assessing whether VAT-free shopping for tourists should be reinstated, which could have a significant positive impact on the luxury retail market and provide a much-needed boost to the hospitality industry.
However, it is important not to jump to conclusions too soon. There have been instances in the past where the government hinted at reversing the decision to scrap tax-free shopping for tourists, but ultimately, the decision was not made. The OBR has been asked to examine the costs and benefits of ending tax-free shopping schemes for tourists in 2020, a move made by former Chancellor Rishi Sunak under Prime Minister Boris Johnson. Richard Hughes, Chairman of the OBR, has stated that the watchdog will publish its conclusions alongside the Budget next month. The review is being conducted based on new evidence on international visitor numbers, consumption patterns, and analysis by external organizations.
Multiple reports have highlighted the benefits of reintroducing VAT-free shopping. According to the Centre for Economics and Business Research (CEBR), the tourist tax deters two million foreign visitors from coming to the UK, leading to a £11.1 billion loss in GDP for the economy. The British government argues that removing VAT-free shopping after Brexit helps keep money within the country and prevents it from primarily benefiting foreign visitors. However, it appears that nearly everyone except the government believes that reinstating the perk is a good idea.
Experts in the retail industry have also emphasized the impact of scrapping tax-free shopping. Jacqui Baker, partner and head of retail at RSM UK, points out that international visitors are coming to the UK but holding off on shopping until they reach other European countries like France and Italy. Baker suggests that there is a correlation between the tax change and consumer behavior. Dee Corsi, Chief of New West End Company, sees the OBR’s review as a major milestone in the campaign to bring back tax-free shopping. Corsi believes that reintroducing VAT-free shopping would have a positive effect on tax revenues and make British businesses competitive again. The UK has the infrastructure and reputation to support the influx of spending that tax-free shopping would bring, benefiting not only the West End but also regional airports and luxury manufacturing hubs.
The reintroduction of tax-free shopping presents an opportunity for the government to stimulate economic growth. This scheme has support from all major political parties and can be implemented by businesses. It is a chance for the UK to recapture tourist spend that has been directed to other European destinations and become the largest and closest tax-free shopping destination for 450 million EU residents. The benefits would be felt nationwide.
With the OBR’s review underway, it remains to be seen whether the UK tourist tax will indeed come to an end. The government has been presented with a compelling case for the reintroduction of tax-free shopping, and it would be wise to seize this opportunity for economic growth.
Useful Links:
1. Office for Budget Responsibility (OBR)
2. Centre for Economics and Business Research (CEBR) – Tourist Taxation and the UK Economy
