Sadiq Khan has added his voice to the chorus of figures calling for Rishi Sunak to U-turn on his decision to scrap the UK’s VAT exemption for tourists.
Khan today said the move would be “hugely counter-productive” as the UK economy recovers from the Covid crisis next year and that revenue lost from the change is “cash our struggling retailers will need more than ever before”.
Sunak announced in September that the UK would no longer make shopping VAT-free for tourists after 31 December.
The rebate allowed tourists to get VAT back at the airport for luxury goods they had bought in the country while visiting.
Critics have argued the policy will put London at a disadvantage to other major European shopping destinations, such as France and Rome, who have VAT exemptions for high-wealth shoppers.
“Of all the damaging impacts of this Covid pandemic, it is the drop-off in tourism which has had the biggest effect in reducing spending in our shops and business in central London,” Khan said.
“Spending by tourists in central London is set to plummet by £10.9 billion this year alone.
“Ending VAT-free shopping for tourists would be a hugely counter-productive move just when we need to be encouraging more visitors to return safely to the capital again.”
Cities of London and Westminster MP Nickie Aiken also told City A.M. that the Treasury should reconsider the change and that department officials had likely not considered the effects of Covid when drafting the policy.
She said: “I am concerned about the effect it could have on tourism, and particular retail and hospitality, because it’s an ecosystem and we need incentives for people to come here and international visitors from the Middle East, China and India have always said they liked the benefit of tax free shopping.”
Labour shadow Treasury minister James Murray also sent a letter to the Office for Budget Reponsiblity (OBR) last month to ask about the economic impacts of scrapping the VAT exemption.
A Treasury spokesperson said: “We’ve invested £280bn to support jobs, businesses and livelihoods in London and across the UK, including a 12-month business rates holiday for businesses in hospitality, leisure and retail, which runs until the end of March.
“It’s clear that there are still hard times ahead, but we will continue to support people through this and ensure nobody is left without hope or opportunity.”