The Treasury's independent forecaster is to review the scrapping of duty-free shopping for tourists, a decision slammed by leisure companies and retailers for deterring tourists and costing the UK billions in sales. is increasingly likely to be overturned.
The change of heart is likely to be seen as a blow to struggling businesses, with the Office for Budget Responsibility (OBR) set to investigate the costs and benefits of Rishi Sunak's decision to scrap the retail scheme in 2020 when he was Chancellor. It has become. Treasurer.
OBR chairman Richard Hughes said the government spending watchdog will publish its findings alongside the budget next month.
In a letter to Conservative backbench MP Sir Geoffrey Robert Clifton-Brown in December, he said: “We plan to undertake this analysis in the first months of 2024, with the aim of publishing our conclusions in conjunction with the spring budget.”
The review, first reported in the Sunday Times, was carried out “in light of subsequent evidence on international visitor numbers and their consumption patterns, and analysis carried out by a number of external parties”, the letter added. .
The Treasury estimates that reinstating VAT-free shopping would cost the Treasury £2 billion, but Hughes said: “This is not an analysis undertaken by the OBR.”
Last year, as part of an industry campaign for the tax to be scrapped, the economic consultancy Center for Economics and Business Research said the abolition of duty-free shopping would cost the UK economy £10.7 billion a year and deter 2 million tourists a year. said.
It added: “Our analysis showed clear economic benefits associated with the VAT refund scheme, and the decision to end the scheme was upheld, despite demonstrating an analytical error in the government's calculations.” he added.
A “tourist tax” was even blamed for contributing to Swiss Watch's recent share price slump last month. The move comes as Britain's biggest seller of Rolex and Omega watches becomes the latest luxury retailer to experience a drop in spending from aspiring shoppers.
With the exception of the ultra-wealthy, shoppers in the US and Asia looking for handbags and luxury watches are likely to end up spending more on boutiques in Paris or Milan than in London, retailers argue.
Last year, Gerry Murphy, chairman of fashion group Burberry, criticized Mr Sunak while the Prime Minister was attending a business event, saying the then Prime Minister's decision to abolish duty-free shopping for tourists was “in some ways perverse”. '' and said it was a “magnificent own goal.'' .
Efforts to persuade the government to reconsider its decision were made again this weekend with the launch of a new campaign by Heathrow Airport, the British Chambers of Commerce and the Federation of Small Businesses.
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In a joint statement, the campaign called on the government to “abolish the tourist tax” and said: “Nearly overnight, tourists faced a 20% increase in prices compared to the country's closest European neighbours, and many “This has hit British businesses hard at a time when tourist numbers were on the rise.” They were struggling to survive. ”
“The reality is that every sale diverted from UK tills to continental Europe puts the wages and livelihoods of thousands of people dependent on domestic retail trade and supply chains at risk.
“Over 400 businesses, over 50 cross-party MPs and local leaders all rarely agree, but this time they all agree. The UK is the only country in Europe that is suitable for visitors. The country's lack of tax-free shopping incentives makes it an uncompetitive and unattractive place to spend and do business.
The Treasury said: “We keep all our taxes under constant review and recognize the value that retailers bring to the UK.” That's why we announced a £4.3 billion business rates package to support businesses and high streets in our Autumn Statement.
“All non-UK visitors can continue to enjoy VAT-free shopping by purchasing products in-store and having them shipped directly to your overseas address.”
