Chancellor Jeremy Hunt is facing renewed pressure to scrap the so-called tourist tax, with business groups arguing that reinstating VAT-free shopping for international visitors would inject £1.5bn into the UK economy. The calls come ahead of the March Budget, with hopes raised after it emerged that Hunt ordered a review of the costs and benefits of the policy.
The Treasury previously claimed that reinstating the tax break could cost £2bn a year, but the Chancellor has asked the Office for Budget Responsibility to re-examine the figures. In a letter sent in December, OBR chair Richard Hughes confirmed that the body was reviewing the estimates.
The British Chambers of Commerce and the Federation for Small Businesses, supported by Heathrow Airport, have launched a campaign urging Hunt to reintroduce tax-free shopping for non-UK visitors. They argue that the current system puts UK retailers at a disadvantage, as the UK is the only major European country not to offer the incentive.
Shevaun Haviland, director-general of the BCC, said businesses were “feeling the impact of the UK being the only major European country not to offer tax free shopping”. She added that changing the policy would help foster inward investment and growth across the visitor economy. Tina McKenzie, policy chair at the FSB, said the move would “attract high-spending visitors back to our quality retail sector” and provide a boost to secondary spending in restaurants, bars and hotels.
The Association for International Retail reported that the retail industry is losing £1.5bn a year as tourists choose tax-free shopping destinations over the UK. Despite the pressure, the Treasury declined to comment on the upcoming Budget, noting that VAT-free shopping remains available for visitors who have items sent directly to their overseas address.
