The Spring Budget is the perfect opportunity to kill the tourist tax

Reinstating tax-free shopping will be a shot in the arm for UK tourism – and is long overdue, writes Chris Hayward

The City is on the brink of a huge win. After tireless advocacy from a coalition of businesses spanning various sectors, the Chancellor, Jeremy Hunt, has heeded our collective call to reassess the UK’s stance on tax-free shopping, a move long overdue.

The resounding support for this initiative is evident in the collaborative letter spearheaded by Heathrow and endorsed by 92 businesses representing a spectrum of industries nationwide. From manufacturers and retailers to businesses and hospitality venues, the consensus is clear: the restoration of tax-free shopping is imperative for bolstering visitor numbers and driving spending to levels commensurate with our international counterparts.

The detrimental effects of discontinuing tax-free shopping have been keenly felt across the board. Since the Treasury’s decision to re-introduce the tourist tax in 2021, purchases have become significantly more expensive for foreign tourists, deterring them from shopping in London and diverting their spending to our European counterparts. The repercussions have been stark, with businesses experiencing revenue declines, operational downsizing, and supply chain disruptions. The figures speak volumes, with British shops haemorrhaging £1.5bn annually due to the exodus of non-EU international visitors to nations offering tax-free shopping incentives.

Thankfully, signs of progress are on the horizon. The Treasury’s responsiveness to our pleas is evident with the commissioning of an independent review by the Office for Budget Responsibility (OBR) to evaluate the merits and drawbacks of VAT-free shopping. Findings from Oxford Economics for instance, underscore the potential windfall awaiting us upon the restoration of tax-free shopping. In fact, anywhere in the UK, from Dundee to Dover and Belfast to Barry, will benefit with projections indicating a surge of 1.8m additional visitors by 2025/26, injecting £2.8bn into the economy and safeguarding 78,000 jobs.

Reinstating VAT-free shopping is not just a no-brainer; it’s an imperative for revitalizing London’s economic landscape, something the Mayor of London agrees with too. By alleviating the financial burden on tourists, we can catalyse footfall, job creation, and economic growth, all of which are indispensable components of our post-pandemic recovery strategy. As we gear up for a pivotal election year the government must wield every tool at its disposal to stimulate economic resurgence, starting with the implementation of a globally competitive tax-free shopping scheme in the forthcoming Spring Budget.

Here, at the City Corporation, we’re full speed ahead on turning the Square Mile into a premier leisure destination, with our Destination City programme and Local Plan firmly supporting this agenda.

With footfall steadily rebounding, the increase in educational attractions, public roof gardens and terraces, viewing galleries, open spaces and exciting retail and leisure offers will help transform the Square Mile into an amazing destination for everyone. 

Despite reservations from certain quarters about the potential revenue loss, empirical evidence overwhelmingly supports our position that the economic gains from increased tourist spending far outweigh any fiscal concessions. One study by the Association of International Retail found we could receive a £4.1bn boost to GDP through extra tourist shopping. 

By championing the restoration of tax-free shopping in the coming month, we have an opportunity to chart a path to making the British tourism and retail industry one of the most competitive in the world. We must not miss this opportunity.