Making purchases exempt from VAT could result in £3.65 billion ($4.9 billion) of additional spending by visitors from the European Union, the Association of International Retail said in a submission to ministers published Tuesday. That’s on top of about £1.5 billion of spending by non-EU visitors the lobby group said was diverted from the UK when it scrapped tax-free shopping in 2021.
The report sent to the Department for Culture, Media and Sport is the latest salvo in a long tussle between retailers and the government. Then Chancellor of the Exchequer Rishi Sunak used the UK’s exit from the EU as a chance to end a system that let travelers reclaim the 20% VAT sales tax on their purchases.
Since then, Conservative and Labour governments — with the exception of the short-lived administration of former Prime Minister Liz Truss — agreed with Sunak’s assessment that the policy cost the Treasury more than it gained. Subsequent analysis by the Office for Budget Responsibility backed that view.
Reeves faces a fiscal shortfall heading into this year’s autumn budget, after expensive U-turns on welfare cuts and amid reduced prospects for growth. That makes any change to her stance on tax-free shopping less likely, even as she faces calls to help companies after she raised payroll taxes this year.
But British retailers argue they have lost out to countries like France and Spain that offer tax-free shopping to non-EU visitors, and have repeatedly put forward the argument that the Treasury is not taking into account the wider uplift in spending in considering the impact of the policy on the public coffers.
Hundreds of retailers including Mulberry Group Plc, Fortnum & Mason Plc and John Lewis signed an open letter to Reeves last year calling for the government to reinstate the policy.
According to the Association of International Retail, the UK would become the only country in Europe offering VAT rebates to 450 million EU consumers. It also cited figures showing visitor spending in the UK was 92% of 2019 levels last year, compared with 106% in Spain and 110% in France.
