Tax-free shopping has been a topic of debate in the UK, with the government previously dismissing its reintroduction. However, a new report from Oxford Economics, commissioned by the Association of International Retail (AIR), argues that this decision is a mistake. According to the report, reintroducing tax-free shopping could contribute £350 million per year to the Treasury and lead to a significant increase in foreign visitor numbers and spending. This would consequently add billions of pounds annually to the economy and support tens of thousands of jobs across the country.
Following the release of the report, AIR is urging the Chancellor to have the Office of Budget Responsibility review the Treasury’s original estimates. The removal of tax-free shopping has already had negative consequences for luxury retailers in the UK, as non-European tourists have opted to shop in fashion capitals like Paris and Milan instead of British cities. Additionally, plans to extend tax-free shopping to EU residents after Brexit have been abandoned.
There was a glimmer of hope for the return of tax-free shopping when it was included in a mini-budget a few months ago, with intentions to expand it to European visitors. However, due to the fallout from the budget, this decision was reversed, once again abolishing tax-free shopping.
The estimated benefit of £350 million from tax-free shopping, as determined by Oxford Economics, is based on the assumption that the direct cost to the Treasury for refunded VAT would be £590 million, significantly lower than the Treasury’s own estimate. However, tax-free shopping is expected to generate an additional economic activity worth £940 million, resulting in a net positive impact of £350 million for the Treasury. Moreover, the reintroduction of tax-free shopping would attract an extra 1.6 million visitors in the first year alone, leading to an additional spend of £2.1 billion. Collectively, this boost in foreign visitor numbers and spending would contribute a total of £4.1 billion per year to the economy and support the employment of 78,000 individuals in the UK.
The report suggests that tax-free shopping would have a greater impact on GDP and tax revenue compared to a policy that encourages spending solely within the UK, as the additional spending originates from international visitors. The discrepancy between the figures presented in the report and the Treasury’s own estimates is thought to stem from assumptions regarding refund values, an overestimation of the total value of tax-free shopping refunds claimed, and a failure to consider the effect of tax-free shopping on visitor behavior.
Paul Barnes, CEO of AIR, argues that during this current economic downturn, businesses are actively searching for opportunities to increase their income. Tax-free shopping, in particular, has the potential to attract an extra 1.6 million affluent visitors to the UK, who would spend money in various sectors such as retail, dining, hospitality, and tourism. Sir Geoffrey Clifton-Brown MP, Deputy Chair of the Public Accounts Committee, also supports the reintroduction of tax-free shopping, stating that it would deliver a significant and immediate boost to the country’s economy.
In conclusion, the Oxford Economics report commissioned by AIR emphasizes the potential economic benefits associated with the reintroduction of tax-free shopping in the UK. It could lead to billions of pounds in additional spending, the creation of tens of thousands of jobs, and a substantial increase in foreign visitors to the country. Ultimately, it remains to be seen whether the government will reconsider its stance on tax-free shopping and acknowledge its potential positive impact on the UK economy.
Sources:
1. BBC News: Tax-free shopping could generate an extra £350m for the UK
2. Financial Times: Tax-free shopping could boost economy by £350m, says report
