Tax-free shopping can boost tourism ...and the economy

FOR decades, international shoppers coming to the UK were able to reclaim VAT on retail purchases. This was a major driver of tourism, an essential industry for our country, which supports 3.8 million jobs. Visit Britain estimates shopping accounted for 25% of all international visitor spending — more than any other single item, including accommodation, dining or travel.

- Derrick Hardman Guest columnist

For every £1 spent in VAT-free shopping, around £4 was spent on goods and services on which VAT was charged.

Tax rebates for tourists were in line with most other major economies. VAT is designed as a destination-based consumption tax. Any tax due should be paid where goods are ultimately consumed, not where they were bought. All EU counties offer tax-free shopping for this reason.

In 2021, however, the last government abruptly scrapped these tax rebates as ministers sought budget savings. Little thought seemed to have been given to whether the Exchequer would lose out overall.

Sadly, it is now clear that international visitors are increasingly being driven into the arms of the UK’s rivals due to the absence of VAT rebates here. New figures show that our post-Covid tourism recovery has been weaker than elsewhere in Europe.

The figures on tourist spending are stark: last year in the UK, it stood at 92% of 2019 levels compared with 106% in Spain and 110% in France. Increasingly, British shoppers are also shunning homegrown outlets and buying items on trips to the EU, where they can claim a VAT refund.