End of tax-free tourist shopping ‘cost UK businesses £1.5bn’
British retailers lost £1.5 billion in sales last year after the introduction of the “tourist tax”, according to an analysis of spending by non-European Union visitors to Europe.
Amid growing industry pressure on the government to reinstate tax-free shopping for international visitors, a report found that French, Italian and Spanish businesses had benefited from a 98 per cent rise in sales from international shoppers compared with 2019.
The £1.5 billion estimate considers the fall in spending in the UK compared with 2019 levels and how much the nation could have gained if it had shared in a similar rise in spending as key European rivals.
In the same period, British retailers suffered a 28 per decline, a fall of £401 million, according to the study by the Association of International Retail, which campaigns to reinstate the tax break.
It said that spending from Gulf states was down by 35 per cent, while in France, spending from these tourists was up by 104 per cent. While UK revenue from American tourists rose by 1 per cent between 2019 and 2022, in France it was up by 129 per cent, the report found.
Ministers withdrew VAT-free shopping for non-EU international visitors in January 2021. The scheme originally was implemented to comply with EU rules and it was closed at the end of the Brexit transition period. The government has said that the economic benefit was unclear and that the tax break appeared to not benefit the whole of the UK equally.
The association has passed its research to the Treasury as part of a consultation on the impact of the policy.
Paul Barnes, chief executive of the group, said the government’s assumption that the end of tax-free shopping would not significantly change shoppers’ behaviour was wrong. He warned that provisional figures for 2023 suggested that the problem was “getting worse” and that some retailers in the West End of London were reconsidering their investment plans.
“The economic growth created by tax-free shopping is a positive for the Treasury, not a negative,” he said. “We ask the chancellor to review this policy as a matter of urgency and to restore tax-free shopping, so that the whole of the UK can benefit from the growth in spending by international visitors that Europe is experiencing.”
Despite complaints from industry and MPs, in September the Treasury said that restoring the scheme would cost £2 billion and noted that it did not “directly benefit” Britons.
Last year, a report by the association claimed that the true direct cost of reinstating the tax break would be £590 million and that the broader economic boost would provide a net benefit to the taxpayer of £350 million.
There is renewed focus on the policy before this month’s autumn statement. Last week, business owners gathered in Savile Row, London, to protest against the tax as 400 companies signed a letter to Jeremy Hunt, the chancellor, calling for the policy to be reinstated.