The Centre for Economics and Business Research (CEBR) has recently published a report underscoring the significant economic advantages linked with a VAT reimbursement program for visitors to the UK.
CEBR is a UK based independent economic consultancy specialising in economic impact assessment and macroeconomic forecasting.
Their study has found that the abolition of the UK’s duty free shopping system in 2021 following Brexit is discouraging approximately two million tourists yearly.
This results in an estimated annual GDP loss of £10.7 billion.
In September of the previous year Kwasi Kwarteng who was then serving as UK Chancellor, announced intentions to reinstate VAT free shopping for foreign visitors to the UK.
However this plan was promptly discarded by his successor Jeremy Hunt; he argued that by not implementing this scheme it could cost the treasury £2 billion annually.
The CEBR said that “if the traditional scheme offering VAT-free shopping for tourists was restored, there would be a clear overall benefit to the public finances”, with the government gaining £1.56 in other taxes for every £1 refunded in VAT to tourists from overseas.
Scrap the tourist tax campaign
A scrap the tourist tax campaign set up by the Daily Mail earlier this year has resulted in more than 300 businesses signing up to lobby against the governments decision to abolish VAT rebates for tourists.
Chairman of Rocco Forte Hotels Sir Rocco Forte helped to commission the new research, said: ‘The chorus of criticism from business leaders of the tourist tax has become deafening and a responsible Government can ignore it no longer. The Treasury has asked for evidence that scrapping tax-free shopping has damaged the economy and deterred high-spending tourists.
‘Not only have 350 leaders of some of Britain’s leading businesses and tourist attractions now signed a letter warning that valuable tourist revenue is being lost, we also have economic analysis showing very clearly that restoring tax-free shopping would boost the public finances and the wider economy.
‘Far from costing £2 billion a year as the Treasury has claimed, the exchequer would actually benefit by £2.3 billion when wider tourist spending is taken into account. At a time when we are desperate for economic growth, a U-turn on this policy is urgently required. We now know that reintroducing a VAT rebate scheme would boost visitor numbers to the UK by two million a year – the UK simply can’t afford to go on driving these tourists into the arms of our rivals.
‘As long as we leave the tourist tax in place, Paris, Milan and Berlin can’t believe their luck.’
The case for tax free shopping
Purchasing goods in mainland Europe where VAT rebates are still provided is 20% more cost effective than in the UK.
Even UK consumers can undertake short trips to European cities to buy high end luxury goods so they can benefit from tax free savings.
Watches of Switzerland group CEO Brian Duffy which helped to commission the CEBR report, said: ‘This evidence is even more compelling than I anticipated. It is simply irresponsible of the Government not to give this full consideration. We are aware from our brand partners and published data that tourist spending is bouncing back in the EU in a way that is simply not happening in the UK, and this is all down to the absence of VAT-free shopping.
‘Our economy needs sustainable growth and this report points to a significant growth opportunity from tourism.’
It’s not just the retail sector that’s backing the change with the CEO and chairman of British Airways Sean Doyle and the chief executive of Heathrow Airport John Holland Kaye providing support from the airline industry.
On the subject of tax free shopping and the return of VAT rebates it was recently reported that Shevaun Haviland who is the director general of the BCC (British Chambers of Commerce) said:
‘I brought it up again a couple of weeks ago with the PM’s business adviser Franck when I saw him at an event so it’s on their list.
‘It seems an easy win for them and it’s not clear to me as yet why they’re not going down that path. He really, really listens, he’s very engaged and he’s obviously talked to a lot of stakeholders. I do think that they are thinking about it – the door is ajar.’