BUDGET: VAT-free shopping calls fall on deaf ears

By Luke Barras-hill |

The UK’s Chancellor of the Exchequer Jeremy Hunt looks to be giving no ground on the issue of tax free shopping for overseas visitors, despite bullish calls from the retail industry to convince the government to change course.

Hunt’s 7,700-word Spring budget statement delivered to the House of Commons yesterday (15 March) passed without mention of any prospect of reviving VAT-free shopping in the foreseeable future.

Hopes for the introduction of a digital tax free shopping mechanism for international visitors were raised in former Chancellor Kwasi Kwarteng’s infamous ‘mini budget’ in September, before the plan – together with a wave of previously announced tax cuts – were scotched by Hunt when he took over the following month.

Scrapping tax free shopping will save the Treasury £2 billion annually, the government has said.

Budget a ‘missed opportunity’

Fraser Brown, Retail Director, Heathrow Airport, told TRBusiness: “This was a budget for growth and unshackling business investment, delivering on the Prime Minister’s priority of growing the economy, but the Chancellor missed a trick.

“A new tax free shopping incentive for international visitors would attract millions more visitors, stimulate billions more in tourism spend, and would create the perfect environment for retailers to commit to the UK and invest substantially on high streets and at airports across the country, just as they have continued to do in other European countries where they still have tax free shopping in place.

“France is one of those countries and tourism spend there has already surpassed 2019 levels to a record €58 billion, eclipsing spend in the UK which stood at £26 billion, well short of pre-pandemic levels.

Chancellor of the Exchequer Jeremy Hunt delivered his Spring Budget this week. Source: HM Treasury.

“The Treasury has the opportunity to introduce a brand new, fully digital tax free shopping incentive, one that works for consumers, the economy and the Exchequer, and one that truly cements the UK’s international competitiveness.”

The UK government declined to extend the VAT Retail Export Scheme to EU visitors and withdrew the mechanism for non-EU visitors in Great Britain in January 2021, though tourists can still avail of tax free shopping provided goods are shipped to an overseas address.

Since then, DF&TR voices have been heavily critical of the government’s policy, arguing it puts the UK at a ‘competitive disadvantage’ compared with its European counterparts by disincentivising high-spending visitors, with Britain the only European country not to allow tax free shopping to tourists.

“It is a shocking decision by the UK Government to not use yesterday’s budget to bring back tax free shopping. Many of us warned of the serious impact this foolish decision would have before it was first taken – and those warnings have come true,” commented 2.0 & Partners Senior Executive VP Marco Passoni.

“High-spending shoppers will continue to choose to buy in markets such as Italy, France and Spain, where the conditions are more favourable. For the UK government to not see this, or to ignore it, is madness.

“We as an industry, both luxury retail and travel retail, must continue to call for an end to this stupidity and a return of tax free shopping, which will make the UK once more competitive for consumers and attractive for brands.”

A prominent industry source, who did not wish to be named, added: “It’s incredibly frustrating that despite significant evidence on the financial benefits to the UK of reintroducing VAT free shopping on both the high street and at our ports and airports, the Chancellor continues to ignore these facts and doesn’t even ask The Office for Budget Responsibility (OBR) to do any economic analysis. As tourist numbers rise the UK is being left behind its competitors with this nonsensical approach.”

HM Treasury has been contacted for comment.

Calls for arrivals duty free

Nigel Keal, Chair, UKTRF, said: “Arrivals duty free will be a Brexit benefit for airports of all sizes, but especially those smaller, regional airports up and down the country. We continue to encourage the government to consider this policy concept, and are ready to offer our ideas, expertise and support.”

A November report from Oxford Economics commissioned by the Association of International Retail estimates that contrary to the £2 billion Treasury figure, the direct cost of refunded VAT would equate to £590 million.

An expected boost in added economic activity worth £940 million in tax take would leave a net positive impact to the Treasury of £350 million, the report argues.

It says such a measure would attract an extra 1.6 million visitors in the first full year, spending an added £2.1 billion.

The budget prioritised announcements on childcare, pensions, fuel duty, benefits, energy support, defence spending and the climate, among other areas.

In an encouraging sign, the independent OBR forecasts that CPI inflation will fall to 2.9% by the end of the year with the UK economy avoiding a recession.

“This government remains steadfast in its support for the independent Monetary Policy Committee at the Bank of England as it takes action to return inflation to the 2% target,” stated the Chancellor.

“Despite continuing global instability, the OBR reports that inflation in the UK will fall from 10.7% in the final quarter of last year to 2.9% by the end of 2023. That is more than halving inflation.

“Underlying debt is forecast to be 92.4% of GDP next year, 93.7% in 2024-25; 94.6% in 2025-26, and 94.8% in 2026-27, before falling to 94.6% in 2027-28. We are meeting the debt priority.”

Elsewhere, the DF&TR industry has been ramping up messaging around the untapped opportunity offered by tax and duty free on arrival in the UK, which has been the subject of a sustained campaign of late.

Nigel Keal, Chair of the UK Travel Retail Forum, told this publication: “UKTRF continues to make the case that arrivals duty free will deliver substantial benefits for UK businesses, airports and passengers.

“Arrivals duty free will be a Brexit benefit for airports of all sizes, but especially those smaller, regional airports up and down the country. We continue to encourage the Government to consider this policy concept, and are ready to offer our ideas, expertise and support.”

The government significantly enhanced duty free allowances for passengers travelling back to the UK in January 2021, but as things currently stand they do not benefit from arrivals duty free shops as some Eastern European and EEA countries do.

Last year, a poll from the organisation revealed that 55% of Britons wish to see duty free allowances extended to arrivals shops at airports, ports and railway stations.

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