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Scrapping VAT rebate for foreign shoppers ‘costing UK billions’

More than 300 business leaders have warned the Government the failure to restore a VAT rebate on shopping by foreign tourists amounts to a “spectacular own goal” for the UK economy.

They warn the “tourist tax” is costing the UK billions in lost revenues.

Extra sales generated by reinstating VAT-free shopping for tourists would outweigh losses associated with sales tax refunds by £2.3bn in 2023, according to a study by economic consultancy the Centre for Economics and Business Research.

The report estimates that a tax-free shopping scheme could have supported as many as 172,000 jobs during 2022, or 201,000 in 2023.

An open letter to ministers says the failure to restore the VAT rebate has made the UK the most expensive place in Europe to shop.

They argue Treasury calculations on the cost of tax-free shopping fail to account for wider tourist spending in hotels, restaurants, theatres, museums, tourist attractions and on public transport.

Increasingly, UK shoppers are also choosing to spend overseas, with the VAT rebates they can claim covering the cost of travel.

The hotelier Sir Rocco Forte said foreign capitals such as Paris, Milan and Berlin “can’t believe their luck”.

LONDON, ENGLAND - JANUARY 17: Rocco Forte speaks during the Brexit: Let's go WTO rally by the Leave Means Leave Brexit Campaig in Central Hall on January 17, 2019 in London, England. After defeating a vote of no confidence in her government, Theresa May called on MPs to break the Brexit deadlock and 'come together, put the national interest first - and deliver on the referendum.' (Photo by Leon Neal/Getty Images)
Hotelier Rocco Forte (Photo: Leon Neal/Getty)

“The chorus of criticism from business leaders of the tourist tax has become deafening and a responsible government can ignore it no longer,” he added.

“Not only have 350 leaders of some of Britain’s leading businesses signed a letter warning that valuable tourist revenue is being lost, we also have economic analysis showing clearly that restoring tax-free shopping would boost the public finances and the wider economy”.

Brian Duffy, chief executive of the Watches of Switzerland group, which also helped to commission the report, said: ‘This evidence is even more compelling than I anticipated. It is simply irresponsible of the Government not to give this full consideration. We are aware from our brand partners and published data that tourist spending is bouncing back in the EU in a way that is simply not happening in the UK, and this is all down to the absence of VAT-free shopping.

‘Our economy needs sustainable growth and this report points to a significant growth opportunity from tourism.’

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