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‘Scrap the tourist tax that’s harming London’, say business leaders

Foreign tourists currently cannot reclaim the VAT on purchases they take home as they leave the UK (Alamy Stock Photo)
Foreign tourists currently cannot reclaim the VAT on purchases they take home as they leave the UK (Alamy Stock Photo)

Rishi Sunak has been urged by business leaders to take the “no-brainer” decision to scrap his tourist tax on foreign shoppers before irreparable damage is done to London’s global reputation.

There is growing alarm that over the first summer peak holiday season without any Covid restrictions millions of visitors will return to their home countries with the message that the capital is too expensive compared with rival destinations such as Paris, Milan or Madrid.

On Wednsday, the boss of luxury retailer Watches of Switzerland added his voice to the chorus of pleas calling for a change of heart from the Government “the sooner the better”.

Brian Duffy told the Evening Standard: “Our view is that it is inevitable the decision will be reversed, the numbers are compelling in showing the benefit VAT-free shopping can bring. Britain has long been a favourite and iconic destination to come and shop, but we have now made it more difficult for ourselves to attract tourists.

“The sooner the better for bringing back VAT-free shopping. We would like to see a proper independent review conducted, and for the Government to do what is right for UK PLC.”

The Evening Standard led the campaign of opposition to the axing of VAT-free shopping by Mr Sunak when he was chancellor in January 2021.

The move immediately made it 20 per cent more expensive for foreign tourists to shop in London because they could not reclaim the VAT on the purchases they take home as they leave the UK.

London businesses fear billions of pounds of spending is being lost because tourists from Asia, America and the Middle East in particular are opting to do their shopping in other European cities that still have the perk.

Shoppers from EU countries would also have been entitled to the VAT deduction here after Brexit — making London a very attractive cheap shopping destination for them.

Chris Hayward, policy chairman at the City of London Corporation, said: “Re-introducing VAT-free shopping for London’s tourists is an absolute no-brainer.

“Cutting tourists’ tax on shopping will drive footfall, jobs, and growth, attract global visitors, and boost the capital’s recovery from the pandemic. With economic growth in the doldrums the Government must act quickly.”

Dozens of leading business chiefs in London’s tourism and retail sectors, including the bosses of British Airways, Mulberry, the Royal Opera House and Fortnum & Mason last month wrote an open letter to Chancellor Jeremy Hunt describing the policy as “a spectacular own goal”.

But so far the Treasury and Number 10 have refused to accept the case for a U-turn, arguing that it would cost £2 billion in lost tax revenue, although studies have shown that this would be more than outweighed by a £4.1 billion boost to GDP through extra tourist shopping. There were the first signs this week that the Government might be prepared to consider a change of heart when the Prime Minister’s official spokesman said: “We are always happy to listen to the sector about their concerns and obviously we will respond accordingly.”

But London businesses say time is of the essence if the capital is to avoid long-term harm.

Dee Corsi, chief executive of business group New West End Company, which represents traders in Oxford Street, Bond Street and Regent Street, said: “We have campaigned tirelessly for a reversal of the decision to end tax-free shopping, so we welcome the Treasury’s request for data that we know will prove this is an economic own-goal.

“According to the Oxford Economics forecast, the last six months will have cost the UK £1.5 billion in missed international sales. International visitors are now realising that the UK is 20 per cent more expensive than other European cities, and West End businesses are suffering the consequences.

“Shopping is a key driver in deciding which city break to go on. Ever since tax-free shopping was abolished, international visitors have been returning home from our shores less likely to come back, and more likely to head to France or Spain next time.

“The latest data shows a genuine behaviour change, spend is being diverted to other European cities and the situation is worsening. Our message to the Prime Minister is clear — we need to restore tax-free shopping as quickly as possible. And he should start by commissioning an independent report into the direct impact this decision has had on the entire tourism ecosystem.”

Richard Burge, chief executive of the London Chamber of Commerce and Industry, said: “The economic cost of the scheme is minute compared to the overall economic gain of increased numbers of tourists spending more money in the UK, especially in our capital. VAT-free shopping is a no-brainer for London’s prosperity, and the Government must reintroduce it immediately to avoid driving tourists away from London.”

John Dickie, Chief Executive at BusinessLDN, said: “Bringing back VAT-free shopping would attract international visitors back to the UK and boost spending in sectors hit hard by the pandemic and strikes. By doing so, it would strongly support growth, generate £4.1 billion GVA annually, create 78,000 jobs and increase £350 million in tax revenues for the Exchequer every year.

“The Prime Minister must listen to businesses and restore VAT-free shopping to deliver on his pledge to grow the economy.”

Adam Hug, leader of Westminster City Council, said: “The West End is a major attraction for overseas visitors and by not offering VAT free shopping, we are effectively signposting them to go and spend their money in other parts of the world.

“The latest research demonstrates that reintroducing tax-free shopping would lead to a growth of around £4.1 billion in gross domestic product and support 78,000 jobs. It would also add around £350 million a year to the public purse. This is a win-win for the Chancellor; it would be economically illiterate not to do it.

“If we are to fully recover from the effects of the pandemic and return to our previous tourism levels the Government must acknowledge the importance of our international visitors. I want to see the reinstatement of tax-free shopping for all overseas visitors, to create revenue for the exchequer, ensure the UK’s global competitiveness and support local jobs. The Evening Standard’s campaign is a welcome and powerful voice to support that.”