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

By Luke Barras-hill |

Will Jeremy Hunt reverse the decision to axe tax free sales to overseas visitors? Source: HM Treasury.

It’s a vitally important week for the UK economy and there is a real clamour ahead of Wednesday’s Spring Budget announcement.

Clearly, a great deal is at stake tomorrow – not least politically. It’s possibly the last roll of the dice for the incumbent Conservative government ahead of a looming General Election to stake their claim to remain in Whitehall and address what (depressingly) remains a torrent of societal challenges – from policing, education and healthcare to immigration.

That’s not to mention getting a grip on the increasingly divisive rhetoric witnessed across the political spectrum in recent weeks that has not showered the country – and certainly not its politics – in any glory.

Various media are running with the suggestion that we could see the country take to the polls as early as May. In the meantime, the retail community will be waiting with bated breath as Chancellor of the Exchequer Jeremy Hunt dusts of his red box and assumes his position at the despatch box.

Tax cuts are widely expected, but will he take the long overdue move and restore tax free sales for overseas visitors? TRBusiness has been reporting on this story since a consultation on tax and duty free sales led to the government removing the VAT Retail Export Scheme and extra-statutory concession on airside purchases (excluding liquor & tobacco) in one fell swoop in the wake of Britain’s exit from the EU. A TRBusiness-led petition garnered more than 12,500 signatures at the time and prompted a response from government. A silver lining was the extension of duty free to the EU.

Tax breaks on (non-liquor and tobacco) goods purchased post-security at airports and other UK exit points and downtown via the VAT Retail Export (VAT RES) mechanism in Great Britain were ended in January 2021 under post-Brexit trade rules, though tourists can still avail of tax free shopping provided goods are shipped to an overseas address.

Why does all this matter? The recent run of form hasn’t been particularly noteworthy. Autumn statements are seldom associated with vote-sealing headlines and land-grabbing fiscal policy gestures; more a chance for the incumbent government to outline its economic vision aligned to Office for Budget Responsibility (OBR) forecasts. Frustratingly for travel retail, there was nothing in the last statement on reversing the tax free shopping decision.

Hopes for a digital tax free shopping mechanism for international visitors were raised during the short-lived tenure of former Chancellor Kwasi Kwarteng in September 2022, before it was axed by Hunt when he took over the following month.

Since the end of VAT RES and airside tax free, scores of retail chiefs, MPs, airports and businesses have lined up to castigate a decision that makes the UK less appealing to an international shopper increasingly prepared to open their wallet in the likes of Paris and Milan rather than in London.

Heathrow continues to be a vocal campaigner for the campaign to restore tax free sales, which has hurt its luxury segment.

With the picture changing on an almost hourly basis as political journalists across the land pump out Whitehall leaks and the conjecture mill oscillates at breakneck speed (as does the journos’ caffeine intake), more surprises could yet be in store… If there is to be another ‘U-turn’ on the tax free issue, it’s likely to be squeezed into the early part of Hunt’s speech.

Unsurprisingly, the Chancellor has been resolutely tight-lipped on the specifics of any specific tax cuts despite the proverbial cacophony of speculation in recent weeks.

On the media round on Sunday, he pledged there would be “no gimmicks” in Wednesday’s announcement. Rather, a “Prudent and responsible budget for long-term growth tackling inflation, more investment, more jobs and a path to lower taxation as and when we can afford it”, he told the BBC’s Sunday with Laura Kuenssberg programme.

The clue, as always, is in the language. Unfortunately, Hunt has delivered his best poker face in recent days. The result is the industry is not really any closer to knowing if change is afoot. Will he play the joker card tomorrow and surprise us all? We’ll have to wait and see…

That the government’s spending watchdog is reviewing the costs and benefits of the tax free decision – the government had maintained that ending the mechanism would save the Treasury around £2 billion a year (including £1.4bn to extend the mechanism to EU visitors) – offers some comfort in that the issue is finally being taken a little more seriously.

We’ve heard the many persuasive arguments and seen the data modelling on the benefits of re-introducing tax free. Paul Barnes, Association of International Retail (AIR) CEO, told a Culture, Media and Sport committee last year that the Treasury directly relinquished more than £200 million in 2022, having culled UK tax free shopping on 1 January 2021. Indeed, the AIR has pointed to a diversion of £1.5bn in spending away from Britain towards Mainland Europe in 2022.

The conclusions of the OBR review are expected to dovetail with the budget announcement. The absence of a positive outcome on either the OBR findings and/or the tax free shopping policy itself will bring an unwanted and empty echo to the House of Commons Chamber…

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