Hopes rise over end to the tourist tax as Hunt orders review
JEREMY Hunt has ordered the Government’s economic watchdog to investigate whether the controversial tourist tax costs Britain more than it raises.
The Office for Budget Responsibility will investigate the ‘costs and benefits’ of Rishi Sunak’s 2020 decision to scrap tax-free shopping for tourists.
If the study confirms claims by campaigners that the tax has cost the economy billions of pounds in lost revenue, it could open the door for the decision to be reversed in next month’s Budget. The Treasury has insisted that reinstating the tax break would cost the Exchequer around £2 billion a year.
But critics argue the entire economy would benefit from reinstating VAT-free shopping as it would encourage tourists to splash out on restaurants, hotels and transport services, as well as on shopping sprees.
Analysis by the Centre for Economics and Business Research last week suggested the tax was costing the wider economy more than £11 billion as wealthy tourists divert to cities such as Paris, which have retained tax-free shopping. In a letter to campaigners, OBR chairman Richard Hughes has suggested the original Treasury work failed to look at the wider impact of the tax.
Mr Hughes said the analysis was ‘not undertaken by the OBR’ and had looked at only ‘those impacts directly relating to goods previously eligible for a VAT refund, rather than any wider consequences’. Tory MP Sir Geoffrey Clifton-Brown said he was ‘very encouraged’ by the development and hopeful of action in the Budget.
He said: ‘I would be very surprised indeed if when they look at it properly, with all the latest trading figures being submitted by shops and hotels, they do not conclude that it would be beneficial for the Treasury and the economy more generally to reinstate tax-free shopping.
‘The Treasury have been wedded to this idea that it would cost £2 billion for too long now. It is based on the wrong methodology.’
But a Whitehall source warned that the OBR study would have to demonstrate that scrapping the tax would not cost the Treasury a penny before Mr Hunt would be persuaded to act. The source said current forecasts suggest the Chancellor may have just £14 billion in ‘fiscal headroom’ at the Budget and is likely to prioritise other areas, such as cuts to income tax.
The British Chambers of Commerce, Federation of Small Businesses and Heathrow Airport will today launch a new campaign urging Mr Hunt to look again at the issue.
Shevaun Haviland, director-general of the British Chambers of Commerce, said: ‘Businesses across our chamber network are feeling the impact of the UK being the only major European country not to offer tax-free shopping. By introducing a tax-free shopping scheme for international visitors, the Government can help foster inward investment and growth across the visitor economy, which will strengthen our supply chains and drive economic activity in all regions and businesses throughout the UK.’
Meanwhile, figures revealed that Britain’s regions could earn an additional £5 billion a year just from EU visitors if the Government scrapped the tourist tax.
Scotland could bank £1 billion from extra spending, according to estimates from the Association of International Retail, while the North West could make an extra £720 million.
Marks & Spencer, Harrods and Mulberry are among more than 400 prominent businesses that have backed the Mail’s campaign calling for the Government to scrap the levy. Ministers have tried to dismiss the concerns of business leaders by arguing tax-free shopping benefits only luxury brands and the most affluent tourists hunting for a bargain.
But the research from the AIR – which represents the likes of Bicester Village and Heathrow Airport, as well as tourism boards – lays bare how ditching the levy would not just benefit the capital.
The pre-Brexit scheme was available only to those outside the EU – such as visitors from the Middle East or the United States. If the levy is scrapped, tourists from the EU would be able to access the tax-free market in the UK for the first time.