Heathrow “deeply disappointed” in tax-free shopping pass in Spring Budget

By Faye Bartle |

The UK’s Spring Budget delivered no u-turn on the withdrawal of the VAT Retail Export Scheme and tax-free shopping concession. Image: Shutterstock.

The UK’s Spring Budget today revealed no movement on restoring a tax-free shopping scheme for tourists, prompting leading voices pressing the case for the policy change to share their disappointment over the ‘missed opportunity’.

“Heathrow, alongside hundreds of businesses and business groups, is deeply disappointed that the Chancellor has passed up the opportunity to introduce an internationally competitive tax-free shopping scheme at the Budget,” said Fraser Brown, Retail Director, Heathrow.

“The Government has let the chance to deliver a much needed economic boost to the tourism, hospitality and retail sectors slip away, in favour of short term decisions.

“Heathrow will continue to make the case to scrap the tourist tax to level the playing field for British businesses.”

It’s a blow for campaigners who have been stepping up efforts in recent months to press the economic case for introducing an internationally competitive tax-free shopping scheme.

Research by the Association of International Retail (AIR) claims that the UK Treasury has directly lost £200 million since the UK’s tax free shopping programme was withdrawn from 1 January 2021 – a figure that the Association’s CEO Paul Barnes relayed to a Culture, Media and Sport committee in November 2023, ahead of the Autumn Statement.

In addition, the AIR calculates that UK retailers have lost £1.5 billion in spend as tourists opt to shop in other countries.

More data comes from an economic analysis by Centre for Economics and Business Research (CEBR), which models that the ‘tourist tax’ may be costing the UK £10.7 billion in lost GDP and two million extra foreign visitors a year spending money across the economy.

The research, published in August 2023, posited that for every £1 refunded in sales tax to foreign tourists, the exchequer would gain £1.56 in other taxes due to the ‘dynamic economic effects of tourist expenditure’.

It also claimed that additional revenues generated by restoring scheme would outweigh losses associated with VAT refunds by £2.3 billion in 2023.

Fraser Brown

Fraser Brown, Retail Director, Heathrow.

“It is very disappointing that the Treasury has not yet responded to the overwhelming evidence and calls from businesses across Britain about the damage being done by Britain now being the only European country not to offer tax-free shopping to international visitors,” said Paul Barnes, Chief Executive of the Association of International Retail.

“The Treasury has also not responded to evidence of the massive growth opportunity from making Britain the only major European country where the 450 million EU residents could shop tax-free.

“We continue to call for an independent assessment of the full impact of tax-free shopping. We have not yet had that.”

The Office for Budget Responsibility (OBR) committed in December 2023 to reviewing the original examination of the costs and benefits resulting from the decision to end tax-free shopping schemes in 2020, with the conclusion published today alongside the Budget.

The conclusion reads that its 2020 methodology ‘still appears reasonable’.

Commented Barnes: “The Chancellor has stated that: ‘The government is grateful to the OBR for their review of the original costing of the removal of tax-free shopping. The government will consider these findings alongside industry representations and broader data, and welcomes any further submissions in response to the OBR’s findings.’

“We look forward to continuing our discussions with them.”

UK Travel Retail Forum laments ‘missed opportunity’

“It is disappointing to see the UK Government has again neglected to take advantage of the opportunities available to UK airports and travel retailers since Brexit,” said Nigel Keal, Chair of the UK Travel Retail Forum, following the delivery of the Spring Budget.

“Sales of duty-free products are taking place abroad at the expense of our airports. The introduction of duty free stores on arrivals would not only generate substantial benefits for our airports, local communities and the wider British economy, it would so so at no cost to the UK taxpayer. At the very worst, it would be a cost-neutral measure for the Government.

“There was also a huge opportunity missed by the Treasury’s refusal to reintroduce tax-free shopping. The UK remains to be one of the only major world economies to not have a VAT-free shopping scheme in place, putting us at a huge competitive disadvantage.

“While disappointing, the UKTRF will continue to highlight easy to implement measures that would put our industry on a level playing field with international competitors, boost revenue and airport reinvestment, and stimulate British growth, jobs and international competitiveness.”

Nigel Keal

Nigel Keal, Chair of the UK Travel Retail Forum.

Sentiments are echoed by by Sacha Zackariya, CEO of ChangeGroup and Prosegur Change, who recently commissioned formidable report on the issue, which was sent to the Chancellor on 1 February.

“I just arrived back from a round-the-world trip where I saw the amazing things shopping meccas are doing to attract tourists, and the contrast with the UK is demoralising. If we can’t get this right, what chance do we have of competing with the countries that actually welcome tourists?

“This was the government’s last chance saloon to move on this before the election. If Labour are serious about growing the economy, I hope they’re taking note.”

Sacha Zackariya

Sacha Zackariya, CEO of ChangeGroup and Prosegur Change.

The UK government withdrew the VAT Retail Export Scheme and extra-statutory concession on airside purchases (excluding liquor & tobacco) from Great Britain (England, Scotland and Wales) effective from 1 January 2021, in the wake of Britain’s exit from the EU.

As reported, a TRBusiness-led petition garnered more than 12,500 signatures at the time and prompted a response from government.

READ MORE: Comment: Will he or won’t he? The tax free question (and hopefully answer)

READ MORE: Businesses call for tax-free return as budget looms

READ MORE: Roundtable and campaign takes aim at ‘tourist tax’

READ MORE: LHR sees 6m pax in January; presses case for tax-free shopping incentive

READ MORE: Tax free shopping cull leaves UK Treasury ‘£200 million worse off’

READ MORE: Tax free ‘could inject £10bn into UK economy’

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