A new report, released Monday, says the elimination of duty-free purchases in the UK, triggered by Rishi Sunak when he was chancellor and now prime minister, is costing the country £10.7bn ($14bn) and deterring two million tourists a year from visiting.
At the time of the ban on what was effectively a VAT refund scheme for tourists taking goods out of the country, the government said the benefit was not necessarily used as intended. He stated that at airports “the tax concession is not always passed on to consumers”, while in the city center some tax-refundable goods were returned to the UK.
Sources familiar with VAT refund schemes also said the one in force in Britain was unnecessarily complex and expensive to administer, and was another reason why it was dumped. Whatever the reasons, it is becoming increasingly clear that the sums do not add up.
The report from the Center for Economic and Business Research (CEBR) states that the the additional revenue generated by reintroducing a VAT refund scheme would exceed the losses associated with VAT refunds by £2.3bn ($3bn). For every £1 refunded in sales tax to foreign tourists, the UK treasury would earn £1.56 in other tax thanks to the nature of tourism spending.
If the scheme were to be reinstated, CEBR data points to a £10.7bn GDP increase by 2023 through what it calls a “tourism spending multiplier” which estimates how money spent by tourists circulates in the economy. . “The additional activity stimulated by duty-free purchases and the associated increase in tax revenue significantly exceeds the corresponding loss from sales tax, even in scenarios with lower acceptance rates,” the report says.
An earlier independent report from Oxford Economics suggested that the reintroduction of duty-free shopping would boost the economy by more than £4bn each year and support 78,000 jobs.
Treasury calculations on the cost of duty-free purchases do not appear to have taken into account tourist spending on hotels, restaurants, theaters, museums, tourist attractions, and transportation. Estimates from the VisitBritain tourism agency suggest that around 25% of all UK tourist spending goes towards shopping, covering clothing, souvenirs, household items, books and food.
Open letter signed by 350 companies
Another open letter was sent, this time to the current chancellor, Jeremy Hunt, signed by a series of 350 companies that want to bring back duty-free sales. In addition to brands, retailers and airports, theater companiesLondon’s Royal Opera House and other art venues have also gone on the offensive.
Signatories to today’s letter include British Airways; a number of UK airports including Heathrow and Gatwick; luxury brands like Asprey London, Burberry, Ferragamo and Garrard; retailers ranging from Primark and Marks & Spencer to Harvey Nichols and Selfridges; and hotel groups such as Claridge’s, Dorchester Collection and Rocco Forte Hotels.
The letter states: “All the remaining countries in the European Union now offer duty-free shopping, while we do not. Sure enough, we suddenly started charging 20% more than other countries for the same products. The Treasury claims this move is saving the taxpayer £2bn a year, but this is wrong and misleading. Overseas visitors who traditionally come from the US, the Middle East, China and elsewhere to buy the best of the British pump large sums of money into the broader economy, on top of what they spend on retail purchases.”
Leading the campaign to restore duty-free shopping is Sir Rocco Forte, who runs Rocco Forte Hotels, which helped commission the report. He said: ‘The chorus of criticism from business leaders of the tourist tax has become deafening. The Treasury has asked for evidence that eliminating duty-free shopping has hurt the economy and deterred spending tourists.
“We now have economic analysis that shows very clearly that restoring duty-free shopping would boost public finances and the economy in general. At a time when we are desperate for economic growth, a U-turn in this policy is urgently required. The UK simply cannot afford to drive these tourists into the arms of our rivals.”
The largely discredited government of Liz Truss did not announce plans to reintroduce the VAT refund scheme last autumn, but his administration was short-lived and the decision was reversed. There is now growing discontent, including from two former Conservative Party chancellors, Liberal Democrat leader Sir Ed Davey and London’s Labor mayor Sadiq Khan.
Britain can’t compete with Europe
More data from travel shopping analyst Global Blue points to Britain’s failure to recapture its international tourism relative to its neighbours. Looking at visitors from the US, Gulf Cooperation Council (GCC) and South East Asia regions in a sample of 11 leading retailers, the UK has rebounded post-pandemic to 64% of visitors. spending levels of 2019. However, Italy is at 79%, Spain at 84% and France, the main beneficiary of the removal of duty-free shopping in the UK, has recovered to 108%.
When looking at the spending of Americans, the differences are even more pronounced. Visitor spending by Americans in Britain is back at 101% from 2019, while Italy enjoys comparative rates of 190%, while Spain is over 200% and France has hit 226%.
Watches of Switzerland CEO Brian Duffy commented: “This evidence is even more compelling than I expected. It is simply irresponsible of the government not to give this full consideration. Tourist spending is picking up in the EU in a way that’s just not happening in Britain, and this is all due to the absence of VAT-free shopping.”
Chancellor Hunt will also have to endure a 90-minute parliamentary debate on September 7 on proposals to reinstate duty-free shopping. The date was secured by Sir Geoffrey Clifton-Brown MP, who will open the discussion. He said: “It is really important that this issue is discussed in depth. Hopefully, he will send a strong message to the chancellor before the autumn declaration.
Dee Corsi, Chairman of the International Retailers Association and CEO of the New West End Company, commented: “Parliament’s decision to debate duty-free shopping, with cross-party support, is a sign of how serious this issue is. for the British economy and business.”