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Jeremy Hunt orders review ‘to end tourist tax’ costing retailers £11M

February 5, 2024

Jeremy Hunt has ordered a review into the controversial “tourist tax,” signalling a potential policy shift by the Treasury that could benefit the UK’s retail and leisure sectors.

The Office for Budget Responsibility (OBR) has been tasked with assessing the costs and benefits associated with Rishi Sunak’s 2020 decision to eliminate tax-free shopping schemes for tourists. Richard Hughes, OBR Chairman, stated that the review considers new evidence on international visitor numbers and consumption patterns. The findings will be published alongside the upcoming Budget.

Sunak’s decision to end VAT reclaims for overseas visitors was initially motivated by concerns that VAT-free shopping primarily benefited wealthy Chinese tourists. The Treasury estimated a £2 billion cost to reinstate the scheme, a figure the OBR chairman sought to distance from, emphasising that it was not OBR analysis. Hughes also hinted at flaws in Treasury calculations, noting the omission of wider consequences beyond goods eligible for a VAT refund.

The British Chambers of Commerce, Federation of Small Businesses, and Heathrow airport’s CEO are among those pressuring to reverse the tourist tax. Critics argue that the decision has increased prices for tourists by 20%, negatively impacting British businesses. Hotel tycoon Sir Rocco Forte, supported by numerous industry leaders, has campaigned for the reversal of the tax, estimating an £11 billion economic boost loss. Official data indicates a million fewer tourists visited the UK last summer compared to 2019.

Jeremy Hunt faces a potential backlash from Conservative backbenchers if he does not reconsider the tourist tax. A cross-party group of 64 MPs and peers, including 38 from the Conservative Party, has urged the chancellor to introduce a new internationally competitive tax-free shopping scheme for overseas visitors. The Treasury emphasized ongoing review of all taxes and highlighted the availability of VAT-free shopping for non-UK visitors buying items in-store and having them sent directly overseas.