Tax-free shopping for tourists in the UK may make a comeback as the government contemplates a rethink of the decision made by former Chancellor Rishi Sunak in 2020. The Office for Budget Responsibility (OBR), an independent forecaster, has been asked to review the costs and benefits associated with the removal of tax-free shopping. This move has been met with criticism from leisure companies and retailers who argue that it has deterred visitors and resulted in the loss of billions in sales for the UK.
The review by the OBR is expected to provide a much-needed boost for struggling businesses. Richard Hughes, chair of the OBR, stated that the conclusions of the review will be published alongside the budget next month. In a letter to Conservative backbench MP Sir Geoffrey Robert Clifton-Brown in December, Hughes outlined the intention to conduct the analysis in early 2024. The decision to initiate the review was influenced by the government’s acknowledgement of subsequent evidence on international visitor numbers and consumption patterns, as well as external analysis.
The Treasury has estimated that restoring tax-free shopping will come at a cost of £2 billion to the exchequer, although Hughes clarified that this figure was not derived from OBR analysis. Last year, the Centre for Economics and Business Research, an economics consultancy, revealed that terminating tax-free shopping was negatively impacting the UK economy to the tune of £10.7 billion per year and discouraging around 2 million tourists annually. Despite these findings, the government upheld its decision to terminate the scheme.
Retailers argue that the removal of tax-free shopping has contributed to a decline in spending by aspirational shoppers, impacting businesses such as Watches of Switzerland, the largest seller of Rolex and Omega timepieces in the UK. They claim that tourists looking for luxury goods are more likely to allocate their budget to boutiques in Paris or Milan due to the higher prices in the UK. Last year, during a business event attended by the Prime Minister, Gerry Murphy, chair of fashion group Burberry, criticized Sunak’s decision, labeling it a spectacular own goal and somewhat perverse.
In an effort to persuade the government to reconsider the decision, Heathrow airport, the British Chambers of Commerce, and the Federation of Small Businesses have launched a joint campaign calling for the scrapping of the tourist tax. They argue that the elimination of tax-free shopping has led to a 20% increase in prices compared to neighboring European countries, delivering a blow to struggling British businesses. Over 400 businesses, more than 50 MPs from different parties, and regional mayors have aligned in support of this campaign.
HM Treasury stated that they continuously review all taxes and recognize the value that retailers bring to the country. They referred to the availability of VAT-free shopping for non-UK visitors who purchase items in-store and have them delivered directly to their overseas addresses. The review by the OBR will shed light on the potential reinstatement of tax-free shopping for tourists in the UK, potentially revitalizing struggling businesses and increasing sales in the country.
In conclusion, the government’s decision to review the removal of tax-free shopping is expected to provide a much-needed boost for businesses that have been negatively impacted. The analysis conducted by the OBR will explore the costs and benefits associated with the decision taken by former Chancellor Rishi Sunak in 2020. Retailers and leisure companies have criticized the removal of tax-free shopping, highlighting the detrimental effects it has had on visitor numbers and sales in the UK. The review is anticipated to be published next month alongside the budget, shedding light on the potential reinstatement of tax-free shopping for tourists in the UK.
