Top UK retailers have called on the government to reinstate tax-free shopping for overseas tourists, which could add £4.1bn to GDP by 2025
According to a report by Oxford Economics, the reintroduction of tax-free shopping would see contributions of £4.1bn in GDP and support 78,000 jobs.
Of this, £1.8bn in GDP would be supported directly on-site at businesses where the additional visitor spending takes place.
Currently, every EU country offers tax-free shopping, unlike the UK, which scrapped the policy in January 2021 as part of its Brexit law changes.
Under the Liz Truss government, then chancellor Kwazi Kwarteng reintroduced the VAT cut, but this was reversed by Jeremy Hunt last autumn.
If the tax change was introduced, tax-free shopping would attract an extra 1.6 million visitors to the UK in 2025/26 and stimulate an extra £2.8bn of tourist spending, according to the retail sector.
In an open letter, MPs have urged Rishi Sunak to commission an independent assessment on the full impact of tax-free shopping on the economy, after the Treasury estimated it could cost £2bn and benefit only a very small minority of wealthy individuals.
Backbenchers Sir Geoffrey Clifton-Brown and Damian Green argue that the change would bring back a ‘balance’ between encouraging tourism and raising funds needed to pay for public services, such as the NHS and schools.
The letter from the retailers stated: ‘The pandemic placed most businesses under acute pressure, particularly those in the hospitality, retail, travel and tourism sectors. So, the Treasury’s decision in 2021 to end the longstanding scheme that allowed international tourists to shop tax-free was puzzling and ill-timed.
‘We ask you to look again, commission an independent assessment of the full impact of tax-free shopping on the UK economy and tax revenues, and seriously consider reinstating the scheme.’
The additional economic output and employment sustained by the tax-free shopping scheme could generate £1.1bn in tax revenues for the Exchequer in 2025/26.
Oxford Economics noted: ‘Our research indicates that the direct fiscal cost of introducing tax-free shopping in the UK would be over 70% lower than implied by the current Treasury estimate.
‘This difference arises because of both an anticipated overestimate of the total value of refunds that would be claimed and the failure to capture the policy’s impact on visitor behaviour.
‘Our modelling indicates that the economic footprint supported by the additional foreign visitor spending would offer a considerable boost to the UK tourism and the wider economy.’
A government spokesperson said: ‘While we want to continue to attract tourists to the UK and boost business competition, we are committed to an approach to the public finances that is responsible.,