The so-called ‘tourist tax’ is under review ahead of the Spring Budget, indicating the Treasury could be set to ditch the policy in a boost for Britain’s retail sector.
Office for Budget Responsibility (OBR) staff are conducting an “examination of the costs and benefits” of Rishi Sunak’s 2020 move to end tax-free shopping schemes, which was latter dubbed the ‘tourist tax’, The Sunday Times reported.
Sunak, then-Chancellor under Boris Johnson, ended the policy, which allowed overseas visitors to the UK to reclaim the VAT on shopping purchases such as luxury goods.
OBR chairman Richard Hughes wrote to the backbench Tory MP Sir Geoffrey Clifton-Brown, that they aim to publish the analysis and conclusions “alongside the Spring Budget”.
This is in “light of subsequent evidence on international visitor numbers… consumption patterns and the analysis carried out by a number of outside bodies,” Hughes added.
But he said a previous estimate that restoring VAT-free shopping would cost the Treasury £2bn, was “not analysis undertaken by the OBR.”
The news comes just weeks ahead of Chancellor Jeremy Hunt’s Spring Budget on March 6, in a hint that the Treasury could be preparing to reverse the policy following extensive campaigning efforts by UK retailers.
A joint piece in The Sunday Times penned by Heathrow Airport boss Thomas Woldbye, British Chambers of Commerce (BCC) director Shevaun Haviland, and Tina McKenzie from the Federation of Small Businesses (FSB) warned Britain was losing its “hard-won reputation” for iconic retail.
They said the tourist tax is “delivering a blow to British businesses at a time when many were struggling to survive” as well as putting “the wages and livelihoods of thousands reliant on retail” at risk.
They added: “Our campaign today has one clear message, Britain’s reputation as one of the world’s premier shopping locations must be protected. Scrap the tourist tax.”
Previously, following hotelier Rocco Forte’s efforts to urge the government to reverse the change, a group of 64 cross-party MPs and peers, including 38 Tories, wrote to Hunt to urge him to create a new, competitive tax-free shopping scheme for tourists.
A Treasury spokesperson said: “We keep all taxes under review and recognise the value that retailers bring to Britain. That is why we announced a £4.3bn business rates package at Autumn Statement to support businesses and the high street.
“VAT-free shopping remains available for all non-UK visitors buying items in store and having them sent directly to their overseas address.”