Heathrow warns tourist tax has grounded growth

Britain's busiest airport says the cancellation of tax-free shopping for international visitors is 'tarnishing the UK’s reputation'

The Departure Hall in Heathrow Terminal 3. Heathrow has joined the call for Chancellor Jeremy Hunt to re-instate tax-free shopping for tourists in his budget next month. Reuters

London's Heathrow airport claimed on Monday that the UK government continues to “shut the door on home grown growth” in the row over the so-called tourist tax.

Britain's busiest airport said the inability of international tourists to reclaim VAT on their purchases when visiting the country is “tarnishing the UK’s reputation as a competitive country to spend and do business with”.

Heathrow said it has joined forces with the British Chambers of Commerce and the Federation of Small Business in pushing for Chancellor Jeremy Hunt to reintroduce tax-free shopping in his spring budget next month.

Shoppers queue outside a Gucci store on Bond Street in London, UK. Several luxury brands are urging the British government to reinstate tax-free shopping in the UK. Getty Images

When he was chancellor back in 2020, Prime Minister Rishi Sunak decided to end the scheme that enabled tourists to claim back the 20 per cent VAT rate on goods bought in the UK.

The independent government spending watchdog, the Office for Budgetary Responsibility (OBR), is currently reviewing the calculations it made about the dropping of tax-free shopping three years ago and will publish its findings alongside the chancellor's budget, which has led many to speculate that Mr Hunt may reintroduce the measures in some form.

In 2020, the OBR forecasted that bringing tax-free shopping to an end would save £1.8 billion ($2.26 billion) by the 2025/26 fiscal year, but added that the numbers were highly uncertain.

For the past three years UK retailers, hotels, restaurants and other businesses involved in UK tourism have been pushing hard for tax-free shopping to be reintroduced.

When asked about the reintroduction of tax-free shopping by The National earlier this month, the Treasury said it does not “comment on Budget speculation”, but a representative added that “we keep all taxes under review and recognise the value that retailers bring to Britain”.

British Airways aircraft at London Heathrow Airport in London. Heathrow passenger traffic numbers in January were about what they were in the last January before the pandemic. Bloomberg

Strong start to 2024

Meanwhile, Heathrow had a strong start to 2024, with six million passengers passing through its terminals in January, including 708,000 from the Middle East.

The total passenger number is a 7.7 per cent increase on January 2023 and is very nearly equal to the last pre-pandemic January in 2020, when 6.1 million passengers passed through Heathrow.

Heathrow was also named as best UK airport for the third consecutive year at the Travel Weekly Globe Travel Awards in January.

“The year has got off to a strong start, retaining Heathrow’s crown as the best UK airport,” said Heathrow chief executive Thomas Woldbye.

“We are ready for the first passenger peak of the year, with February half term fast approaching. Whether you are travelling to ski, soak up the sun, or visit friends and family, Heathrow has you covered.”