The UK’s VAT-free shopping perk for tourists has once again been axed, delivering a severe blow to the retail sector. This move, which was reversed by Chancellor Jeremy Hunt, has raised concerns about the recovery of popular shopping destinations such as the West End of London.
The New West End Company had recently announced that the West End of London was on track to reach pre-pandemic spending levels by 2025, with the VAT-free initiative playing a crucial role in this revival. The cancellation of this perk could potentially disrupt the recovery not only of the West End but also other key tourist shopping areas across the UK.
Paul Barnes, Chief Executive of the Association of International Retail, expressed his disappointment and labeled the decision as a “hammer blow” to both UK tourism and the British high street. Barnes criticized the move, deeming it short-sighted and based on inaccurate projections that could hinder the return of international visitors. He called on the Chancellor to carefully evaluate the cost-benefit before implementing any changes related to tax-free shopping. Barnes highlighted the significant economic benefits that international visitors bring to the UK, benefits that are now at risk due to this decision.
The VAT-free shopping perk was mostly abolished approximately two years ago as a means for the UK government to recoup tax revenues used to finance the financial support provided during the Covid-19 pandemic. This meant that international shoppers from outside the EU could no longer receive a refund on the 20% VAT paid on their purchases at airports. Former Chancellor Kwasi Kwarteng’s mini-budget had promised to reintroduce the perk, alongside other unfunded tax cuts. These measures, however, led to a crisis in the UK, resulting in a devalued pound and increased borrowing costs. As a result, Kwarteng was dismissed by Prime Minister Liz Truss, who appointed Jeremy Hunt as the new Chancellor. Hunt swiftly reversed most of the planned measures, prioritizing efforts to bolster the economy.
The decision to scrap the VAT-free shopping perk has sparked concerns regarding the potential negative impact this could have. Many believe it will be a significant setback, as other European cities like Paris and Milan offer VAT-free shopping, drawing in high-spending international tourists. If the perk had been implemented, it would have given Britain an even greater advantage as it is now outside the EU. Visitors from neighboring European countries would have also been eligible to claim back VAT on their purchases, potentially driving a significant increase in tourist spending. Although this would have resulted in reduced VAT revenues, the retail sector argues that the boost from increased tourism and expenditure would have offset the decrease.
It is possible that the Chancellor is relying on the weakened pound to attract tourists and encourage them to spend more during their visit to the UK. However, the overall reversal of the mini-budget has actually strengthened the value of the pound, undermining this advantage. Ultimately, the decision to cancel the VAT-free shopping perk for tourists is considered a significant setback for the UK retail sector and the wider economy, putting at risk the loss of international visitors and the economic benefits they bring.
Relevant links:
– BBC: VAT Retail Export Scheme abolished
– UK Government: VAT Retail Export Scheme guidance
