Major survey busts myth that scrapping tourist tax would cost millions

Survey concluded that VAT-free shopping ‘encourages tourists to spend more in the UK’  (PA Wire/PA Images)
Survey concluded that VAT-free shopping ‘encourages tourists to spend more in the UK’ (PA Wire/PA Images)

A major survey of tourists carried out before the Treasury decided to scrap VAT-free shopping found that the scheme was hugely popular with foreign visitors and that much of the money they saved was spent in the UK.

The findings from the confidential research conducted for HMRC call into question the Government’s argument that scrapping the “tourist tax” would cost billions and make little difference to the number of people holidaying in London and the UK.

The online survey of almost 800 travellers from China, India and the US was conducted in June 2020, just three months before then-chancellor Rishi Sunak announced that the perk would end on December 31 that year as new Brexit rules came into force.

The decision made it 20 per cent more expensive for foreign visitors to shop in the UK and is being blamed for a shortfall of high-spending tourists in the capital. The study — a copy of which has been seen by the Evening Standard — found 67 per cent of those surveyed said the availability of tax-free shopping influenced their decision to come to Britain, with 57 per cent of those rating the level of influence 9 or 10 on a scale of 1 to 10. Almost two thirds also said the availability of tax-free shopping meant they spent more during their visit.

Of those who said they purchased more, the average extra spend was £3,400 with 10 per cent saying they spent at least £10,000 on top. When asked where they spent the money that they saved, just over half said “all in the UK”. The survey concluded that VAT-free shopping “encourages tourists to spend more in the UK” and that “most spend all or some of their savings in the UK, with a trickle down into hospitality and entertainment services, as well as further spending in retail.”

The research was carried out as part of plans to digitise the VAT reclaim process. It only came to light because one finding was referred to in a “mythbuster” briefing sent out by the Treasury to Tory MPs in October 2020. That meant the Treasury was forced to disclose the survey at a judicial review into the decision to scrap VAT-free shopping in January 2021. In the document the Treasury insisted: “Tourists visit the UK for a number of reasons, with the key motivator being cultural attractions. Tax-free shopping does not even make the list of reasons for visiting GB.”

The Association of International Retail said: “The Treasury has either dismissed or ignored every piece of evidence from business that suggest its forecasts on the impact of ending tax-free shopping might be wrong.” Trupti Shah from Mayfair’s historic Burlington Arcade said reintroducing VAT-free shopping would benefit London and the UK as a whole.

But a Treasury spokesman said: “VAT-free shopping does not directly benefit Brits.”

They added: “We continue to back high street retailers by slashing business rates bills by 75 per cent, helping with energy bills and effectively cutting corporation tax by £27 billion through full-expensing.”

The Office for Budget Responsibility has said reintroducing tax free shopping for foreign visitors would cost £2billion a year, even with other economic impacts accounted for.

However a Treasury source added that the Chancellor is “open to receiving data if people think this is wrong”.