A new report from Centre for Economics and Business Research (CEBR) released this week reveals that the removal of tax-free shopping in the U.K, introduced by Prime Minister Rishi Sunak when he was chancellor is costing the country £10.7 billion and deterring two million tourists a year from visiting.
Hoteliers and retailers have campaigned for the reintroduction of tax-free shopping since the Treasury withdrew from the VAT retail export scheme in January 2021, voicing concerns that tourists are “bypassing” the UK for destinations offering the rebate.
The report commissioned by the Daily Mail and hotelier Rocco Forte has found that the economy would be better off by more than £10 billion a year by reinstating VAT refunds. The Treasury could also see an annual £2 billion boost, estimating that spending eligible for tax-free shopping stood at £6.6 billion last year – rising to £7.7 billion this year. Assuming all visitors took up the VAT rebates, around £1.1 billion of this would have been returned to customers in 2022 – or £1.3 billion in 2023.
On a per visitor basis, VAT refunds would reduce the cost of a visit to the UK by around 4.2 per cent, the CEBR calculated.
It estimated that the cost reduction would have increased visitor numbers by 1.7 million last year – rising to two million in 2023.The CEBR report estimated that spending eligible for the visitor rebate stood at £6.6b in 2022, around £1.1b of which would have qualified to be returned to visitors.
Applying these findings, the CEBR found the initial cost to the treasury in lost taxes would be outweighed by the increase in spending and boost to the wider economy.
Welcoming the findings, Sir Rocco Forte who organised the open letter to Chancellor Jeremy Hunt, said: ‘The Government’s tourist tax, which has made the UK the most expensive place to shop in Europe has turned into a disaster for hospitality, retail, travel and tourism.
‘Just at a time when they should be doing everything they can to boost anaemic economic growth, ministers have tied one hand behind the backs of businesses by abolishing the traditional VAT rebate for tourists that did so much to encourage visitors to come to the UK to spend money.