Tax-free shopping for UK-bound tourists might face issues

Tax-free shopping for visitors to the UK could be reinstated as early as next month, with Chancellor Jeremy Hunt requesting a government watchdog to review the costs and benefits of ending tourists’ ability to reclaim VAT on purchases, a policy that took effect at the beginning of 2021.

The Office for Budgetary Responsibility (OBR) has been tasked with revisiting its calculations from three years ago and is expected to present its findings alongside Chancellor Hunt’s budget next month.

In a letter to Conservative MP Sir Geoffrey Robert Clifton-Brown in December, OBR head Richard Hughes stated that the analysis would be conducted in the early months of 2024, with the aim of publishing the conclusions alongside the spring budget.

The decision to discontinue tax-free shopping for international tourists was made by former UK Chancellor Rishi Sunak in 2020, citing concerns about its impact on the economy. At the time, the OBR estimated savings of £1.8 billion ($2.26 billion) by the fiscal year 2025/26, although these figures were considered highly uncertain.

However, critics argue that the OBR’s calculations overlook the broader effects on tourist numbers and spending. According to the retail analytics firm Global Blue, spending by tourists from Gulf Cooperation Council (GCC) countries was significantly higher in France, Italy, and Spain compared to the UK, indicating a negative impact on UK tourism.

Several industry leaders and organizations, including fashion designer Sir Paul Smith and the British Chambers of Commerce, have expressed concerns about the detrimental effects of ending tax-free shopping. They argue that it has led to a decline in tourist spending and harmed businesses, particularly in prominent shopping districts like London’s West End.

The Centre for Economics and Business Research estimated that the discontinuation of tax-free shopping cost the UK economy £10.7 billion and deterred 2 million tourists from visiting the country.

Despite the criticism, Chancellor Hunt has tempered expectations of significant tax cuts in the upcoming budget, emphasizing the need for responsible fiscal management. He stressed the importance of maintaining a balanced approach to tax policy to support economic recovery and growth.

Pointers:

• Chancellor Jeremy Hunt considers reinstating tax-free shopping for visitors to the UK.
• Office for Budgetary Responsibility tasked with reviewing the costs and benefits of ending tax-free shopping.
• Decision to discontinue tax-free shopping made in 2020 by former Chancellor Rishi Sunak.
• Critics argue that ending tax-free shopping has negative effects on tourist spending and business.
• Industry leaders express concerns about the impact on the economy and call for reinstating tax-free shopping.
• Chancellor Hunt emphasizes the need for responsible fiscal management amid speculation of tax cuts.