Tourist tax cost British businesses £4bn this summer

Businesses have missed out on up to £4.3bn in spending this summer because of the tourist tax, figures published this weekend show.

Companies including Kurt Geiger and Burberry have said reintroducing VAT-free shopping for foreign tourists could boost the economy.

Rishi Sunak abolished the title of chancellor in 2021.

Research shows that between April and July, UK businesses lost £3.8bn in visitors from the European Union, plus a further £500m in visitors from the US, China and the Middle East as a result of the tax.

Research by Global Blue, a company specialising in tax refunds, suggests this equates to a loss of more than £1 billion in VAT and other revenue for the government, at a time when Labour wants to increase taxes.

Travellers who would have come to the UK are shopping elsewhere because of the tax, critics say. Retailers who campaigned for the Tories to scrap the levy are lobbying the Labour government.

If the tax had been abolished, the UK would have been the only major country in Europe where 450 million EU residents could shop tax-free. Global Blue estimates they would have spent £1.9bn over the summer, plus the same amount on hotels, restaurants and other activities, adding up to £3.8bn. The researchers say UK businesses would have earned a total of £10bn by 2024 if EU residents were allowed to shop tax-free.

The Tories refused to abolish the tax because it would mean the Treasury would lose revenue because overseas shoppers would be able to reclaim 20 percent VAT on their purchases. But retailers argue that this loss of revenue would be more than offset by extra spending from tourists on hotels, transport and leisure attractions as more of them visit the UK.

Paul Barnes, chief executive of the Association of International Retail, which represents hundreds of businesses including Heathrow Airport and Bicester Village in Oxfordshire, said: “These are huge amounts of foreign money that could have been spent in British businesses across the UK.

“The Chancellor is looking for ways to promote growth and increase tax revenues. If she were to take another look at tax-free shopping, she would be in for a very pleasant surprise.”

Neil Clifford, managing director of shoe and bag chain Kurt Geiger, said the policy had “left a huge hole in the British economy”.

Clifford added: ‘Brexit was meant to open us up to the world, and then we closed the door on ourselves.’

The Ny Breaking and The Mail on Sunday have campaigned to reverse the policy, with the support of more than 500 businesses. Muniya Barua, deputy director of BusinessLDN, which represents businesses in the capital, said: ‘This data is a wake-up call, showing how tourist tax is funneling spending to Paris, Madrid and Lisbon, where tourists can still shop VAT-free.’

Currently, British companies are competing ‘with one hand tied behind their backs’.

James Lambert, vice-chairman of Value Retail and owner of designer outlet Bicester Village, said his company had seen “evidence of a shift in tourist spending to capital cities in Europe”.

Opponents of the tax argue that it will slow growth.

Rachel Reeves has said she wants to become the most “pro-growth Chancellor” in British history. And a prominent retail source said they are hopeful Labour will decide scrapping the levy is a “magic bullet” for growth after seeing more data.

A Treasury spokesman said: ‘Following the spending audit, the Chancellor has made it clear that tough decisions need to be taken on spending, social security and tax to restore the foundations of our economy and plug the £22 billion hole in the public finances left by the previous government.

‘Decisions on how this should be done will be taken during the budget round.’