Culture Secretary open to reviewing UK ‘tourist tax’

UK retailers have had a lot to complain about recently, including business rates and National Insurance contributions. But one of their biggest bugbears is the so-called tourist tax and the government has signalled that it might be open to revisiting the issue.

VAT-free shopping for tourists was all-but-abolished in the wake of Brexit, despite retailers having expected/hoped that it would be expended to EU shoppers, potentially sparking a tourist shopping boom in Britain.

The then-Conservative government insisted VAT refunds cost it too much revenue (said to be £2 billion a year) and didn’t “directly benefit” British people. That was despite studies claiming the contrary and evidence that affluent consumers were shopping in Paris and Milan instead of the UK’s destination cities.

But while the current Labour government has stayed tight-lipped on the subject so far, the Culture Secretary has said in an interview with Elle that she’s heard “very loud and clear” calls from figures in fashion to bring back the perk. Lisa Nandy stressed that change isn’t currently on the agenda but the government would be “happy to look at the evidence”.

She said that if VAT-free shopping can be shown to be “a benefit, it’s something that we’ll explore, but at the moment, that’s not something we’re proposing to do”.

Since VAT-free shopping was scrapped in 2021, reports such as one from the Centre for Economics and Business Research have presented strong evidence to support its return. The CEBR claimed it cost the country £11.1 billion in lost GDP annually and means two million people are put off from visiting Britain.

Meanwhile, other reports have shown that European countries offering the VAT-free perk have seen higher tourist flows.

And Britain’s potential benefit from bringing back the perk wouldn’t only be about returning to the pre-Brexit status quo. If it was extended to EU shoppers, it would make the UK the only European destination to offer tax-free shopping to the many millions of consumers on its doorstep.

While the Treasury would lose the VAT on the goods sold, the claimed boost to GDP would come from the economic activity that higher tourist flows would spur. That would mean higher retail sales and higher retailer profits, more retail jobs, more hotels and restaurants booked and all the other activities tourists indulge in, all of which would result in more tax going to the Treasury.