A coalition of business leaders today calls for the return of tax-free shopping for overseas tourists.
In a letter to the Chancellor, scores of retail, hospitality and tourism bosses warn that removing the VAT refund for visitors has been an ‘extraordinary own goal’.
Reinstating it would be a win both for business and the taxpayer, they say, with research suggesting it could bring a multi-billion-pound boost to the economy.
Today the Mail launches a ‘Scrap The Tourist Tax’ campaign in support of firms demanding the Government thinks again.
Sir Rocco Forte, British Airways and Fortnum & Mason all argue that the cost of 20 per cent VAT refunds is outweighed by the enormous benefits of encouraging more visitors to Britain.
Jeremy Hunt¿s decision not to reinstate duty-free shopping for overseas visitors is so short-sighted and damaging Sir Rocco Forte (above), who organised the letter to Chancellor Hunt, told the Mail that bringing back tax-free shopping would stimulate growth and be an ‘easy win’ for ministers
These extra tourists would spend across the economy and nation – on hotels, restaurants, entertainment and transport – generating tax revenues and creating jobs.
READ MORE: Jeremy Hunt signals new tax breaks for firms in bid to see off Tory rebellion
Tax-free shopping would bring a much-needed £4.1billion boost to GDP and support 78,000 jobs, according to research by Oxford Economics.
And despite the Treasury claiming it would cost it £2billion in lost taxes, experts have estimated there would in fact be a net gain to the Exchequer of at least £350million a year.
Sir Rocco, who organised the letter to Jeremy Hunt, told the Mail that bringing back tax-free shopping would stimulate growth and be an ‘easy win’ for ministers.
‘Jeremy Hunt blithely talks about growth, and is doing nothing to help growth at the present time,’ he said last night.
‘This would help growth significantly and it certainly has no impact on inflation. There is no reason not to do it.’
The 68 signatories to the letter to Mr Hunt include the chairman of British Airways and the chief executives of Mulberry, the Royal Opera House and Fortnum & Mason, as well as the business director of Bicester Village.
The letter brands the decision in 2021 to scrap the longstanding scheme that allowed international tourists to shop tax-free as ‘puzzling’ and ‘ill-timed’.
Liz Truss sought to reintroduce the VAT rebate during her short tenure in No10, but Mr Hunt reversed the decision last autumn.
Crucially, the report by Oxford Economics says the Treasury has hugely overestimated the headline cost of the policy at nearly £2billion With nearly every other major destination in Europe still offering VAT-free exemptions, many big-spending tourists are now simply heading elsewhere to buy goods
The letter states: ‘Every country remaining in the EU now offers tax-free shopping, while we don’t. Effectively, we have suddenly started charging 20 per cent more than other countries do for the same goods.
The Treasury claims this move is saving the taxpayer £2billion a year, but this is flawed and misleading.
The foreign visitors who have traditionally come from the US, Middle East, China and elsewhere to shop for the best of British inject large sums into the broader economy, on top of what they spend on retail purchases.’
Why abolishing this levy is the key to growth… and not just in the capital
Q&A by Harriet Line
What is tax-free shopping for tourists?
Tax-free shopping for tourists allows holidaymakers to get a VAT refund. Shoppers buying expensive items – such as designer clothes and accessories, or gadgets – can make large tax savings through the scheme. VAT is charged at 20 per cent in the UK, so if tax-free shopping was reintroduced, holidaymakers could save a fifth on goods purchased. Many countries offer tax-free shopping to attract tourists.
Why doesn’t the UK have it?
The Treasury scrapped the long-standing scheme that allowed tourists to shop tax-free in 2021, arguing it was a ‘costly relief which does not benefit the whole of GB equally’. The Government said around 92 per cent of visitors to the UK did not use the VAT retail scheme, and warned that extending it to the EU could increase the cost by up to £1.4billion a year. However, the Treasury kept tax-free shopping for goods purchased in the UK and sent directly to an overseas address, including the EU. Liz Truss and Kwasi Kwarteng announced plans to reintroduce the VAT rebate, but Jeremy Hunt reversed the move in his autumn statement soon after entering No 11.
Why should the scheme be reinstated?
Campaigners say tax-free shopping is a key way to boost economic growth and question the Treasury’s estimates. Tourists – particularly those from the Middle East, Asia and America – would be attracted to come to the UK to shop, rather than to France, Italy and elsewhere. These often wealthy travellers would also spend money on hotels, transport, entertainment and restaurants. Supporters also say that the benefits will spread far beyond London, with tourists likely to travel outside the capital to other cities and outlet shopping centres.
How much will it cost?
The Treasury claims reintroducing tax-free shopping for all tourists would cost £2billion a year. But campaigners say this fails to take account of the knock-on benefits from increased spending in hotels, restaurants, entertainment and transport – a percentage of which goes to the Exchequer. Analysis by forecaster Oxford Economics suggests the net positive impact to the Treasury will be £350million as a result of the increased incentive to travel to the UK.
Who will benefit?
The knock-on effects of tax-free shopping would be felt far beyond the wealthy tourists who stand to make an immediate gain if the Treasury reinstates it. A study suggested it would support 78,000 jobs and deliver a £4.1billion boost to GDP.
How is the UK missing out?
Every EU country offers tax-free shopping, and many tourists arriving from Asia, the Middle East and America are thought to bypass London to take advantage of benefits offered elsewhere in Europe. Research suggests Britain is lagging behind other countries in post-pandemic recovery. The UK is at 64 per cent of 2019 levels of consumer spending for visitors from the USA, south-east Asia and the Gulf, according to Global Blue, a shopping tax refund company. France however has recovered to 108 per cent. The Treasury insists Canada and New Zealand remain popular destinations despite not using the scheme.
Are Britons taking their custom elsewhere?
Britons are travelling to the Continent – often France – to buy designer goods, and are able to easily reclaim the tax paid. Kiosks at the Gare du Nord and other key transport hubs in France allow tourists to process their tax refund themselves. An app has also been developed to help travellers save money on their shopping in France. Earlier this year Mulberry closed its Bond Street store after warning that high-end retail in the capital was becoming ‘unviable’.
Shopping has traditionally been one of the most popular reasons for visiting the UK, and the tax-free scheme helped cities like London, Manchester and Edinburgh, as well as retail villages.
But the removal of the VAT refund is driving tourists away from London to cities like Paris, Madrid and Milan, campaigners say.
Earlier this year, Mulberry closed its store in London’s Bond Street as a result of the loss of tax-free shopping.
Research also suggests the UK’s recovery from the Covid-19 pandemic is being hampered by the removal of the scheme.
Britain is now at 64 per cent of 2019 levels of consumer spending, while France has recovered to 108 per cent, according to data from tax refund experts Global Blue.
The letter concludes: ‘It is clear that the removal of tax-free shopping is turning into an extraordinary own goal for the UK.
‘We understand that there are pressures on the public finances at the present time. But the evidence shows that reinstating tax-free shopping would be a win for both business and the taxpayer.’
Sir Rocco said Britain’s future looked ‘very bleak at the moment’, and he had ‘never been so depressed since the 1970s about the way things are going’.
‘We’ve really given up in this country in terms of seeing this country move forward and grow and be prosperous,’ he said.
He urged the Government to seize the benefits of Brexit by introducing tax-free shopping for Europe, which was not the case before the UK left the EU.
‘There is no point in Brexit unless you do something with it,’ he said.
The hotelier said he had noticed that forward demand for business in Italy, where he owns several hotels, is ‘much stronger than it is for the UK’.
The chief executive of Mulberry, Thierry Andretta, warned that the removal of tax-free shopping for tourists was causing ‘significant’ harm to British brands, retail and hospitality.
‘If we are going to be able to get the UK economy back to growth, we need a level playing field with Europe as currently we simply cannot compete, with Paris, Berlin and Milan all benefiting at our expense,’ he said.
‘This is not just about shopping tourism – this is about restaurants, hotels, live entertainment, and museums, as well as about job creation.’
Manju Malhotra, chief executive of Harvey Nichols, another signatory to the letter, said EU and international residents had ‘diverted their spending from the UK into Europe with the financial incentive of being able to shop tax-free’.
‘This doesn’t just impact retailers like Harvey Nichols but the whole ecosystem of hospitality and businesses across the UK, which benefit from high-value customers visiting our country,’ she said.
‘Furthermore, British citizens now qualify for tax-free shopping and are electing to spend in Europe rather than within the UK.’
Brian Duffy of Watches of Switzerland said: ‘The removal of tax-free shopping for international visitors has been felt by businesses across the UK, particularly in key tourist destinations such as London, Manchester and Edinburgh.
‘Tourists are switching their travel plans to visit cities like Milan or Paris, and the result is a drop in footfall and sales for the UK’s hospitality and retail industries.’
Last night senior MPs joined the clamour of calls urging the Treasury to rethink. Conservative former business secretary Jacob Rees-Mogg said: ‘Tax-free shopping encourages tourism, boosts the economy and costs nothing.
‘Foreign visitors will spend money elsewhere rather than pay an extra tax on the UK so everyone loses under the current system.’
Tory former trade secretary Dr Liam Fox added: ‘We need to look at the wider picture for UK businesses, including the hospitality industry, and get away from simplistic bean counting assumptions.’
A government spokesman said: ‘We are committed to an approach to the public finances that is responsible and helps get debt down.
‘Estimates from the independent Office for Budget Responsibility show implementing a wide-ranging tax-free shopping scheme would come at significant cost.
‘Tax-free shopping continues to be available for all non-UK visitors who purchase items in store and have them sent directly to their overseas address.’
A plea to the chancellor from 68 leading business chiefs
The pandemic placed most businesses under acute pressure, particularly those in the hospitality, retail, travel and tourism sectors which we represent. So, the Treasury’s decision in 2021 to end the longstanding scheme that allowed international tourists to shop tax-free was puzzling and ill-timed.
Liz Truss’s shortlived government announced plans to reintroduce the VAT rebate to boost the high street, but this has now been reversed.
Every country remaining in the EU now offers tax-free shopping, while we don’t. Effectively, we have suddenly started charging 20 per cent more than other countries do for the same goods. The Treasury claims this move is saving the taxpayer £2billion a year, but this is flawed and misleading. The foreign visitors who have traditionally come from the US, Middle East, China and elsewhere to shop for the best of British inject large sums into the broader economy, on top of what they spend on retail purchases.
Figures from Visit Britain show that shopping has traditionally been one of the most popular reasons cited for visiting the UK. Indeed, British business traditionally made £3.5billion in tax-free sales to tourists every year. The scheme benefited tourist hotspots like London, Manchester, and Edinburgh, as well as out of town shopping villages.
Visitors did not just spend in retail stores – their custom supported hotels, restaurants, and theatres. Oxford Economics has concluded that if all the economic impacts of a tax-free shopping scheme are taken into consideration, the UK would, in fact, benefit to the tune of hundreds of millions of pounds a year.
The impact of its removal is already being seen. It was depressing to witness a great British brand like Mulberry closing the doors of one of its flagship stores as a direct result of the loss of tax-free shopping, as it did earlier this year.
New research from tax-free shopping experts Global Blue shows the UK is losing out on the significant spending made by international travellers as global travel resumes. Paris, Madrid and Milan can’t believe their luck as the UK’s lack of tax-free shopping drives travellers to spend in Europe.
Data covering international visitors from the USA, Gulf Cooperation Council (GCC) and south-east Asia regions from a sample of 11 leading retailers shows that whilst the UK has recovered post-pandemic to 64 per cent of
2019 levels of consumer spending, Italy is at 79 per cent, Spain at 84 per cent and France, which is benefiting most from the UK Government’s decision to remove tax-free shopping, has recovered to 108 per cent.
Looking at individual nationalities, the differences become even more pronounced. For USA visitors, the UK is back to 101 per cent of 2019 spend. However, Italy is enjoying spending from US visitors at 190 per cent of 2019 levels. Spain is up to 201 per cent and France is at a staggering 226 per cent.
For GCC visitors, the UK is at only 65 per cent of 2019 levels whilst Spain is already at 158 per cent, Italy at 166 per cent, and France topping out at 198 per cent.
In addition, UK residents are starting to take advantage of tax-free shopping in Europe, with £450million
disappearing from high streets.
It is clear that the removal of tax-free shopping is turning into an extraordinary own goal for the UK.
We understand that there are pressures on the public finances at the present time. But the evidence shows that reinstating tax-free shopping would be a win for both business and the taxpayer.
We call on you to think again.
Sir Rocco Forte, Chairman, Rocco Forte HotelsSean Doyle, CEO and Chairman, British AirwaysThierry Andretta, CEO, MulberryNeil Clifford, CEO, Kurt GeigerCaroline Rush, CEO, British Fashion CouncilAlex Beard, CEO, Royal Opera HouseAnya Hindmarch, Founder and Creative Director, Anya HindmarchFraser Brown, Retail Director, Heathrow Airport Sir Paul Smith, Designer, Paul SmithTom Athron, CEO, Fortnum & MasonJonathan Akeroyd, CEO, BurberryHelen Brocklebank, CEO, WalpoleHannah Colman, CEO, Jimmy ChooChristopher Cowdray, CEO, Dorchester CollectionDee Corsi, CEO, New West End CompanyPaul Barnes, CEO, Association of International RetailGianfilippo Testa, CEO, Alexander McQueenPaul Jackson, General Manager, Claridge’sManju Malhotra, CEO, Harvey NicholsJohn Durnin, Business Director, Bicester VillageKnut Wylde, General Manager, The BerkeleyEric Heerema, Chairman and CEO, NyetimberKiki McDonough, Founder and Creative Director, Kiki McDonoughSandeep Bhalla, General Manager, The ConnaughtTheo Fennell, Founder, Theo FennellAndrew Stembridge, Executive Director, Iconic Luxury HotelsFranck X Arnold, Regional Vice President and Managing Director, The Savoy LondonChristian Bachler, Executive Vice President, WedgwoodGuillaume Marly, Managing Director, Hotel Café RoyalAndrew Henning, General Manager, Grosvenor House SuitesAntony Lindsay, CEO, FabergéThomas Kochs, Managing Director, Corinthia LondonMichael Wainwright, Managing Director, BoodlesPhilipp and Mark Mosimann, Mosimann’s Private Dining ClubMichael Bonsor, Managing Director, Rosewood LondonClaire German, CEO, Design Centre Chelsea HarbourJulia Carrick, CEO, Julia Carrick LuxuryHugh Seaborn, CVO and CEO, CadoganJoanne Rees, Managing Director, Elizabeth GageTrevor Pickett, CEO, PickettBrian Duffy, CEO, Watches of Switzerland Group Pamela Harper, Chairman and CEO,Halcyon Days and The Caverswall China CompanyGiles English, Co-Founder, Bremont Watch CompanyChris Roberts, Managing Director, Como HoldingsSophia Hirsh, Managing Director, Hirsh LondonNicholas Bond, Owner and Director, Franchetti BondGeorge Somlo, Director, Somlo Antiques LondonAdil Mehboob-Khan, CEO, Liberty LondonLuca Donnini, CEO, Temperley LondonDerrick Hardman, Managing Director, Global Blue (UK)David Edwards, Managing Director, Seiko UKRobert Ettinger, CEO, Ettinger LondonCharlie Pragnell, Managing Director, PragnellAnnoushka Ducas, Founder and Creative Director, Annoushka JewelleryErdem Moralioglu, Designer and Philippa Nixon, CEO, ErdemSean Gilbertson, CEO, GemfieldsAdrian Maronneau, Managing Director, Bucherer UKNicholas Brooke, CEO, Sunspel LimitedSimon Cundey, Managing Director, Henry PooleMartin Mason, Managing Director, Tricker’sSacha Rose, CEO, Derek Rose LtdCharlie Holland, CEO, Gusbourne Fine English WinesJulian Moore, Managing Director, DR HarrisHilary Freeman, Managing Director, Edward GreenJamie Gill, Executive Director, RoksandaChris Gaffney, CEO, Johnstons of ElginSteven Medway, Chief Executive, Knightsbridge Partnership and King’s Road PartnershipBaton Berisha, CEO, The Wolseley Hospitality Group