Marble Arch London BID continues to campaign for the re-introduction of tax-free shopping in the UK.
When the UK left the European Union on 31 December 2020, tax-free shopping privileges afforded to non-European international visitors came to an end.
There are two components to tax-free shopping; the VAT RES (retail export scheme) and ESC (air-side tax-free shopping). These schemes allowed overseas visitors from beyond the EU to claim back 20% on their purchases in the UK. From 1 January 2021 we became the only European country not to offer tax-free shopping to non-EU visitors.
Shopping is one of the UK’s main draws for international visitors, boosting the wider tourism industry across the whole country. Luxury goods shopping brings high-spending visitors from China, the Middle East and the United States.
In London, shopping accounts for 46% of all tourist spending, with 30% spent on accommodation and 24% on eating out and entertainment. For every £1,000 spent by an international visitor, £460 is spent on shopping, £300 is spent on hotels and £240 spent on eating out and visiting attractions.
Despite a short period when Chancellor Kwasi Kwarteng attempted to re-introduce tax-free shopping in September 2022, this was quickly reversed in November 2022 by the succeeding Chancellor Jeremy Hunt.
The value of tax-free shopping to the UK should not be underestimated. HMRC calculates that tax free sales amounted to £3 billion in 2019. The true figure, based on retail sales data, is around £3.5 billion. The difference is accounted for by tax free sales where the reclaim has not been made. Research by Global Blue shows that for every £1 repaid, HM Treasury gained £1.90 in tax, mainly generated by increased tourist spending on other (taxed) items.
The Government states that scrapping tax-free shopping saves £2 billion per annum. But a report by Oxford Economics issued in November 2022, commissioned by the Association of International Retail (AIR) found that reinstating tax-free shopping for overseas visitors would actually raise an additional £350m for the Government.
The report refutes the Government’s claims about the costs of the scheme and shows that:
- Rather than a £2bn annual cost, the impact will be a £350m annual net gain to the Exchequer.
- This new analysis takes into account the additional VAT-able spending made by visitors, makes a more accurate, lower assessment of the level of VAT refunds and includes the additional tax revenue generated through increased economic activity.
- The additional international visitor spending generated by tax-free shopping would support £4.2bn of GDP annually, sustaining 78,000 jobs. This is an economic return of 7:1 on investment.
The report continued that the Treasury had failed to take into account the increased number of overseas visitors the scheme attracts, citing an additional 1.6 million more tourists to the UK, spending £4.1 billion on UK hotels, restaurants and attractions. The benefit of the increased spending would far outweigh the cost of VAT refunds.