Rishi Sunak and Jeremy Hunt should wander around London’s West End

UK businesses struggle as tourism declines after tax-free shopping scrapped

The UK is missing out on a post-pandemic tourism boom. Bloomberg
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If Britain’s leaders ventured into London’s West End during the day they would notice there are some tourists, but they are predominantly British or school parties from Europe.

If Rishi Sunak or for that matter, Jeremy Hunt, walked the pavements of the shopping districts of Covent Garden, Bond Street, Oxford Street and Knightsbridge, they would find the high-end designer shops largely empty.

At night, the theatres and restaurants are busy, but not as much as they were pre-pandemic. Noticeably absent or not in the same numbers, are the foreign tourists.

It’s not confined to London. If Sunak and Hunt were to go to the Lake District, where I was recently, they would again notice plenty of domestic visitors but few from overseas. Luxury hotels and restaurants are struggling to attract their staple, big-spending Americans and other international guests.

It does not take a genius to work out what is going on, especially as reports circulate that other parts of the world that rely on the tourist trade are reporting healthy traffic. In 2021, the Treasury scrapped the scheme that had been around for ages allowing foreign visitors to shop tax-free. The claim was that it was a “costly relief which does not benefit the whole of GB equally”.

So, tourists are charged 20 per cent VAT, the same as a Briton. This, while other countries offer tax-free shopping to attract tourists. The tax reclaim counter at Abu Dhabi International Airport was doing a brisk trade when I passed through there two weeks ago. The Louvre in Abu Dhabi was busy the afternoon I toured, with groups of visitors from abroad — not something you would find repeated if you currently looked in on London’s equivalent National or Tate galleries.

The amount the tax brings into the Exchequer is £2 billion a year. It’s a tiny amount when set against the gigantic public purse. Still, every little helps and all that.

But consider this: research by Oxford Economics estimates that scrapping the charge and reintroducing tax-free shopping for tourists would boost GDP by £4.1 billion and support 78,000 jobs. There would, in fact, be a net gain to the Treasury of at least £350 million a year.

To say the business community that relies on overseas visitors is frustrated is an understatement. They’re furious. Now, 68 leaders of organisations including British Airways, Mulberry, the Royal Opera House, Fortnum & Mason and Bicester Village, the designer shops outlet, have signed a joint letter to Hunt pleading for a rethink.

The letter, published in the Daily Mail and organised by hotelier Sir Rocco Forte, calls the decision to abandon the tax-free incentive “puzzling” and “ill-timed”.

“The impact of its removal is already being seen,” they write. “It was depressing to witness a great British brand like Mulberry closing its doors of one of its flagship stores as a direct result of the loss of tax-free shopping as it did earlier this year.”

Their letter cites new research from tax-free shopping experts Global Blue. They say: “The UK is losing out on the significant spending by international travellers as global travel resumes. Paris, Madrid and Milan can’t believe their luck as the UK’s lack of tax-free shopping drives travellers to spend in Europe.”

The 68 chiefs say: “Data covering international visitors from the USA, Gulf Cooperation Council and South-East Asia regions from a sample of 11 leading retailers shows that whilst the UK has recovered post-pandemic to 64 per cent of 2019 levels of consumer spending, Italy is at 79 per cent, Spain at 84 per cent and France, which is benefiting most from the UK Government’s decision to remove tax-free shopping has recovered to 108 per cent.”

What’s also happening is that UK residents “are starting to take advantage of tax-free shopping in Europe, with £450 million disappearing from high streets”.

They describe the reimposition of the tax as “an extraordinary own goal for the UK”.

Reintroducing tax-free shopping, says Forte, would be an “easy win” for ministers. “Jeremy Hunt blithely talks about growth, and is doing nothing to help growth at the present time. This would help growth significantly and it certainly has no impact on inflation. There’s no reason not to do it.”

Well, there is of course, which is that the Chancellor who took the decision to ditch tax-free was one Rishi Sunak. He would be eating humble pie if only two years later he made an about-turn.

His reasoning, though, for making the move in the first place did not stand up to scrutiny. It’s true that not all of the UK benefited equally from the tourist trade, but since when did we have a rule that says tax benefits must apply to all? Our tax system contains numerous examples of sectional advantages.

At the same time, surely the tourist industry is an enormous winner for the whole country. There are the hotspots that attract overseas visitors, such as London, York, Bath, Stratford, the Lake District. But to say they are drawn to just those places is plain wrong. The entire nation is set up like one giant heritage site. Everywhere you go there are museums and galleries and historic locations aimed at appealing to sightseers from anywhere, not only from the UK.

It’s one of the few activities that Britain does best and in which it can claim to be a world leader. Taxing people who want to come and spend their money here and delight in our glorious past and colourful traditions and customs is a cast iron case of cutting our nose off to spite our face. For the sake of £2 billion, it’s nonsensical.

This would be the ideal moment for Sunak to relent. We’re about to embark on a display of pageantry, the like of which has not been witnessed for 70 years. King Charles’s coronation will be a scaled-down version of his mother’s ceremony, but it will be spectacular nevertheless. The world will be watching and they could also be visiting and sharing in the occasion, and at a time, when the economy is fragile, spending their cash and critically, underpinning jobs.

Once the coronation is over, we go into the Summer Season, the like of which is also uniquely British and a traditional magnet for international tourists.

Come on Rishi, swallow your pride. You know it makes sense.

Updated: April 25, 2023, 9:44 AM