A government minister has played down speculation that the tax-free shopping scheme for overseas tourists could be reinstated in next week’s Budget.
Nigel Huddleston, the minister responsible for the tax system, said in correspondence seen by The Times that it was “not possible to introduce the same system as before, given that it would now need to be open to visitors from the EU as well as the rest of the world. “Any new scheme, no matter the design, would take time to legislate for and implement in order to prevent non-compliance risks and ensure operation,” he said.
The Treasury withdrew from the VAT retail export scheme in January 2021 while prime minister Rishi Sunak was chancellor.
Chancellor Jeremy Hunt purportedly ordered a review into the scheme earlier this month after calls from business leaders demanding a reversal, which led many to believe the Treasury was considering a change.
In a letter sent to one of the leaders of the tourist tax campaign, Huddleston added that the chancellor has been “clear that being responsible with the public finances is a key priority”.
He said: “A new VAT-free shopping scheme could subsidise a large amount of tourist spending that already occurs without a tax relief in place, without bringing any direct benefits to the British public.”
Huddleston was responding to a letter to the chancellor from Sacha Zackariya, chief executive of ChangeGroup and Prosegur Change, a British-based retail foreign exchange and bureau de change company.
Zackariya called for a reversal and suggested the British economy could be boosted by capitalising on tourists visiting the Paris Olympics and “encourage them to visit the UK at the same time and benefit from the same VAT refund scheme they would otherwise be able to access in Madrid, Paris, Berlin or Milan”.
British Retail Consortium director of business and regulation Tom Ironside said: “This is bad news for the UK economy.
“It is increasingly clear that, as the only European country without a tax-free shopping scheme, the UK is missing a golden opportunity to boost tourism and the wider economy.
“Tax-free shopping not only convinces tourists to buy more but also attracts shopping tourism, supporting businesses and jobs in the UK.””.
Pippa Stephens, Senior Apparel Analyst at GlobalData, data and analytics company, offers said:
“If the government were to reinstate tax-free shopping for tourists visiting the UK, it would be a welcome relief to brands and retailers across the apparel sector, especially luxury players. The move would help London win back tourists from the likes of Paris, Milan, and Madrid, boosting both the overall economy and luxury apparel sales.
“Since the termination of tax-free shopping at the end of 2020, aspirational shoppers, who tend to buy entry-priced luxury items using their savings, have cut back on purchases when visiting the UK due to prices now being 20% higher than in nearby countries. This has caused the UK to be particularly impacted by the slowdown of the luxury market as consumers also grapple with inflationary challenges, with Burberry highlighting how its performance in the UK lagged Continental Europe in the 26 weeks ending 30 September 2023.
“In response to this, over 400 businesses signed a letter to the Chancellor of the Exchequer in September 2023 asking for the policy to be restored, driving the Office for Budget Responsibility (OBR) to carry out a review, with the results due to be published alongside the budget next month. This reinstatement would enable the UK’s luxury market to return to its perpetual outperformance again once inflation subsides, with the fortune of domestic players like Burberry and Mulberry particularly reliant on tourist sales, as luxury shoppers prefer buying designer goods in the brands’ home markets.”
