UK. Retail stakeholders have expressed disappointment after today’s UK Budget, communicated by Chancellor Jeremy Hunt, failed to deliver a much-hoped-for reinstatement of tax-free shopping in the UK.
In a major blow for the UK airport and other retail industries, the scheme was scrapped in 2021 following Brexit. In September 2022, then UK Chancellor Kwasi Kwarteng confirmed plans to reintroduce tax-free shopping for overseas visitors, as part of his controversial ‘mini budget’.
These plans were quickly reversed by Hunt, who said not proceeding with the scheme would save “around £2 billion a year”.
Since the tax-free shopping programme was ended, retail stakeholders have produced strong counter arguments based on what they calculate to be the real cost of ending the scheme, and its effect on the international competitiveness of the UK.
Giving his reaction to the Budget failing to address the tax-free shopping issue today, Association of International Retail CEO Paul Barnes said: “It is very disappointing that the Treasury has not yet responded to the overwhelming evidence and calls from businesses across Britain about the damage being done by Britain now being the only European country not to offer tax-free shopping to international visitors.
“The Treasury has also not responded to evidence of the massive growth opportunity from making Britain the only major European country where the 450 million EU residents could shop tax-free. We continue to call for an independent assessment of the full impact of tax-free shopping. We have not yet had that.
“All the OBR [Office for Budget Responsibility] has done is review its very limited forecasts for 2020 with no account made for the impact of the growth in spending by international visitors across Europe. And has not even mentioned the new EU market potential.
“The Chancellor has stated that ‘the government is grateful to the OBR for their review of the original costing of the removal of tax-free shopping. The government will consider these findings alongside industry representations and broader data, and welcomes any further submissions in response to the OBR’s findings.
“We look forward to continuing our discussions with them.”
Henry Smith MP, who has been a key figure in driving political support for the resinstatement of tax-free shopping to UK airports, told The Moodie Davitt Report: “As Crawley MP [Gatwick Airport’s constituency] and Chair of the All-Party Parliamentary Group for the Future of Aviation I have a mission to support the aviation, travel and tourism industries and the resumption of tax-free shopping would be a key element in strengthening these vital sectors in the UK.
“So naturally I am disappointed that the issue has not been addressed by the Chancellor today. Tax-free shopping would not only support so many British businesses, but would also contribute significantly to national competitiveness, with much tourism spending currently being redirected to rival European countries.
“Several independent studies have provided irrefutable financial proof of what this policy is costing our nation and the key tourism-related sector. The campaign to resinstate tax-free shopping will continue with strong political and business backing, and I look forward to continuing to play a leading role in that.”
Heathrow Retail Director Fraser Brown gave this view: “Heathrow, alongside hundreds of businesses and business groups, is deeply disappointed that the Chancellor has passed up the opportunity to introduce an internationally competitive tax-free shopping scheme at the Budget.
“The government has let the chance to deliver a much-needed economic boost to the tourism, hospitality and retail sectors slip away, in favour of short-term decisions. Heathrow will continue to make the case to scrap the tourist tax to level the playing field for British businesses.”
In advance of the Spring Budget statement, AIR had stated: “The evidence of actual spending by non-EU visitors to Europe in 2022 shows a £1.5 billion spending loss as a result of ending tax-free shopping.
“The evidence of British people shopping tax-free in the EU suggests that Britain is missing out on a unique new £10 billion market.”
AIR added that reintroducing tax-free shopping “would reverse the growing diversion of spending by non-EU visitors away from Britain to continental Europe, shown by all data on actual spending levels”.
Adding weight to this statement, evidence submitted by AIR to the UK Treasury in November last year showed that France, Italy and Spain combined, their spending stood at 198% of the pre-pandemic 2019 level. In the UK it was down by -28%.
AIR said it expects these numbers to be significantly more negative for the UK in 2023 and 2024.
Last August, a report by the Centre for Economics and Business Research (CEBR) noted “clear economic benefits” associated with a shopping VAT refund scheme, and said that scrapping of the scheme is having the effect of deterring an estimated 2 million tourists a year, resulting in £10.7 billion in annual lost GDP.
Offering his view, 2.0 & Partners Senior Executive VP Marco Passoni said: “The so-called ‘Tourist Tax’ has been a damaging blight on the UK’s finances and standing as a global retail centre for too long, and it is inconceivable that the government has passed up another opportunity to undo this terrible error. Endless figures have showcased the very real damage this tax is doing, from the loss of millions of visitors, to costing the economy billions of pounds.
“As long as this foolhardy and ill-considered policy remains in place, the UK will continue to lose ground to neighbouring capitals and countries as tourists shun our shores for others who have a more attractive offer. Today’s decision is a failing by Jeremy Hunt and the government, there is no other way to put it. To err is human, to persist is diabolical.”
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