Jeremy Hunt ordered a review of the so-called tourist tax, the clearest indication yet that the Treasury could be on the verge of a major policy reversal which would give Britain’s retailing and leisure industries a much needed boost.
Office for Budget Responsibility has been asked to “examine costs and benefits” of Rishi Sunak’s decision to stop tax-free shopping for tourists in 2020.
Richard Hughes, Chairman of the OBR said that the government’s spending watchdog will publish its conclusions along with the Budget next month.
Hughes wrote in a letter sent to Conservative backbencher, Sir Geoffrey Robert Clifton Brown, that the review was based on “recent evidence about international visitor numbers and consumption patterns as well as analysis by several outside bodies”.
Sunak, as chancellor for Boris Johnson announced that overseas shoppers would no longer have the right to claim VAT on their shopping purchases.
One Whitehall source at the time said that the rationale for the decision was the fact that the VAT-free shopping scheme was nothing more than “a bribe to Chinese millionaires to get 20% off a luxurious handbag”.
The Treasury estimated that the cost of restoring VAT-free purchases to Exchequer would be around £2 billion.
Hughes’ comments are likely to anger a large coalition of business leaders, who were opposed to the tax-free shopping ban in the first instance. Hughes was trying to distance the OBR estimate. He said: “I can confirm this analysis was not undertaken by the OBR.”
He also pointed out that the Treasury was not taking into consideration “any wider effects” but only those directly related to goods which were previously eligible for a refund of VAT.
The British Chambers of Commerce and the Federation of Small Businesses, as well as the Chief Executive of Heathrow Airport, have renewed their calls for the reversal of the tourist tax.
Shevaun Hailand, Tina McKenzie, and Thomas Woldbye argued this weekend in an online article for The Sunday Times that “almost over night, tourists saw their prices rise by 20% compared to the closest European neighbors, delivering a major blow to British business at a time where many are struggling to survive”.
Every sale diverted to Europe from British tills puts the livelihoods and wages of thousands of people who depend on retailing and the domestic supply chain at risk. “All hotels, restaurants, and attractions in the UK benefit from bringing tourists into the country,” they said.
The hotels tycoon, Sir Rocco Fore, a major donor to Boris Johnson’s political campaign, led a massive campaign backed up by hundreds of chief executive officers from the retail, leisure and consumer sectors, to convince ministers to reverse this decision, which was made three years ago.
According to a report released last week, the economy has lost out on £11 billion in economic growth because of the tax. The official data revealed that a million less tourists visited the UK in the summer of 2018 compared to the same period in 2019
Last week, it was revealed that Hunt will also face a revolt from the Conservative back bench if he does not back down on this issue. A group of 64 MPs, including 38 Tory peers, wrote the chancellor to urge him to introduce an internationally competitive tax-free scheme for visitors from overseas to the UK.
A Treasury spokesperson said: “We constantly review all taxes and recognize the value retailers bring to Britain. We announced £4.3 billion in business rates at the Autumn Statement as a way to support high streets and businesses.
All non-UK shoppers can still enjoy VAT-free shopping if they buy in-store and have the items sent to them directly at their overseas address.