Scrapping VAT free shopping for tourists is a “major blow” for London and the country’s economy, a group representing luxury stores in the West End and other retail hotspots has said.
Paul Barnes, chief executive of the Association of International Retail (AIR) – whose members range from Bicester Village to Heathrow Airport – told CityA.M. the policy had been “one of the few measures in the growth plan that would have directly and quickly lead to increased economic growth across the country.”
High spending international visitors from the US and Gulf States were “shunning Britain” currently and jetting off for shopping sprees in Paris and Milan while “giving London a miss,” Barnes said.
Newly-appointed Chancellor Jeremy Hunt announced a bonfire of tax cuts in a fiscal statement on Monday morning, reversing almost all of his predecessor’s measures.
Retailers had been delighted after Chancellor Kwasi Kwarteng pledged a digitised version of VAT-free shopping from 2024, claiming it would have encouraged a flurry of overseas visitors back into the capital.
London would be reinstated to its “rightful place among the top luxury shopping destinations in the world,” Thierry Andretta, CEO of Mulberry, had said following Kwarteng’s announcement.
What’s more, the scheme was set to go beyond previous iterations by giving a tax cut on shopping to visitors from the EU while only non-EU members had been eligible in the past.
The Treasury had made the call to ditch the policy “based on inaccurate and incomplete evidence” of a £2bn estimated price tag, which did not factor in the measure’s boost to the economy, Barnes said.
The calculation was four times greater than the cost of the policy in 2019, as well as purely providing the cost side, with tourists’ spending far out weighing the cost of a tax refund, he said.
Retail chiefs lamented the decision to leave the UK as one of the only European countries to not offer tourists a tax-free shopping scheme.
The British Retail Consortium (BRC) said it was “disappointed” by the decision as the move would have “helped strengthen the UK’s position as a top destination for international shoppers,” according to the group’s director of business and regulation, Tom Ironside.
The reversal was an “own goal”, John Dickie, chief executive of BusinessLDN, which represents around 200 London-based firms, said.
“While there would have been tax revenue losses from retail sales, these would have been more than offset with higher revenues from leisure, accommodation and cultural spending,” he added.
The Treasury said it had nothing more to add after the Chancellor’s statement on Monday morning, which had mentioned a £2bn cost of the scheme, when asked by CityA.M.
Just a few weeks ago businesses had been calling on the government to bring forward the scheme to early next year, when the coronation of King Charles III is anticipated to draw waves of tourists into the capital.
The U-turn on tax-free shopping was one of the more surprising elements of Hunt’s statement, according to Chris Sanger, EY’s head of tax policy.
The move could have injected a “welcome boost” to the economy, encouraging spending at ports and high streets, with potential for the Chancellor to return to the measure “in the future,” Sanger added.