Tax-free Shopping for International Visitors

Published date : 07 September, 2023
It is a pleasure to serve under your chairship, Dr Huq. I take this opportunity to sincerely congratulate the hon. Member for The Cotswolds (Sir Geoffrey Clifton-Brown) not only on securing the debate, but on his persistence on this issue. The first time that he and I spoke at the same time on this issue was in a debate on 10 December 2020. I think he only had three minutes on that particular occasion—it was quite a well-subscribed debate on the future of the high street—so it was a great pleasure to hear him expand those arguments today because I am sorry to say that the essential logic of many of the arguments being made on that day has not changed. In removing tax-free shopping on 1 January 2021, the Treasury seemed to make two key assumptions. The first was that ending tax-free shopping would have no significant impact, or so it thought, on foreign visitor numbers or spend in the UK, whether in terms of choosing to come to the UK or spending once they were in the UK. The second assumption seemed to be that extending tax-free shopping to EU resident visitors would attract few additional visitors to the UK.

There has been lots of logic—not to say economic coherence—missing from some recent budgets, which we are all still paying the price for. However, even taking those Treasury arguments at face value, there is a logical flaw that the presence of tax-free shopping was not always necessarily about attracting additional visitors, although I believe that it does do that, but about not losing them to other areas. The main locations, according to the Treasury, that benefited from it were central London and Bicester Village. It is probably hard to argue with the volume of sales there, but, as has been said, many other locations around the UK benefited too, including many in Scotland. Of course, those were only the areas where sales were recorded, and it does not show the economic activity that otherwise might not have taken place if people had not been attracted here in the first place.

This is of particular significance on a couple of levels to Scotland, but particularly to rural Scotland, where tourism, hospitality, transport and the production of luxury clothing are significant contributors to the local economy. In addition, the whisky and spirit distilling industry is of great significance to not only the locations where it is based and the high-value employment that it creates, but the Treasury’s coffers in terms of the overall duties it pays.

We now have data to set against the Treasury’s theory, and the results are in. The data appears to indicate that lots of pent-up spend was available. US tourists are spending about the same in the UK in 2022 as they were in 2019. The Treasury says that is a sign of success in terms of tax receipts, but US visitors are now spending three times more in Spain, Italy and France than they were in 2019. The Treasury also forecast that only 50,000 additional EU visitors might be tempted to come to the UK if they could shop tax free, yet 170,000 UK citizens were claiming tax back from the EU in 2022, which is likely to rise to almost 400,000 in the current year. If we take that figure pro rata and apply it to the EU population, that 50,000 would be 2 million in 2023—we are missing out on 40 times the Treasury’s forecast in terms of people coming to the UK to spend. That real-life data seems to undermine the forecasts.

The impact is on not only retailers, but hospitality, travel and indigenous producers who manufacture the goods being sold in the first place. The usual reaction of many tourists on getting a VAT rebate is to go and spend it immediately where they are—I find that hard to believe, but who am I to argue with observed human behaviour in the real world? So there would be a double benefit, in that the Treasury would get most of it back. The result would be a double-whammy—not just to the Treasury, but to the retailers and producers of these goods. What we are really doing is simply exporting those sales to other countries; in fact, that seems to be one of the few areas where exports seem to be very much up as a result of the Government’s economic policies.

The hon. Member for The Cotswolds described the return of tax-free shopping as a Brexit bonus, but I part company from him there. As with the Windsor framework in Northern Ireland, it would only bring us back to the situation that we were all collectively in prior to Brexit and the Treasury decision. We could still offer tax-free shopping even as part of the European Union; Brexit ought to neither here nor there.

It is not as if the Prime Minister is unaware of the issue; he was still the Chancellor when the decision was taken. But he has certainly had a reminder during his time as Prime Minister. The firm Burberry was mentioned earlier. Gerry Murphy, the chairman of Burberry, was introducing the Prime Minister at a Business Connect event in April this year. He took the opportunity to deliver a few home truths in warning the Prime Minister of the somewhat perverse decision to remove VAT refunds, and said that that had hurt the economy. He said that it had

“made the UK the least attractive shopping destination in Europe”,

noting that virtually every other major destination still offers VAT refunds and that for Burberry the recovery from the covid-19 pandemic was much stronger in Paris, Milan and Munich—all, like London, prime locations for tourism. He called on the Prime Minister and Chancellor to rethink their spectacular own goal, warning that Brexit was acting in that regard as a drag on growth.

Given that Aberdeen airport is in my constituency, it would be remiss of me not to include a pitch for the impact that the issue has on regional airports. Shopping comprises about 45% on average of the revenues that regional airports take in. That revenue is absolutely vital in keeping airports going and route development for the benefit of the area. Aberdeen is, of course, synonymous with the oil and gas sector, so Aberdeen airport has a strategic importance out of all proportion to the area that it serves simply because of how it serves that location and those key industries.

I speak regularly with management at the airport. Every time I visit, they tell me that they are losing sales hand over fist—to Norway, Spain, the Republic of Ireland and France: all the locations to which Aberdeen has a direct air connection—because of the decision. In actual fact that spend should be taking place, providing employment in my constituency and allowing the airport to develop routes. It should also be allowing us to get an economic benefit that, although not directly connected, is tangentially related to the benefits that come from tax-free shopping, which can allow the economy to develop in so many other areas and enable wider connectivity to Europe and the rest of the world. The policy is very much to the detriment of not only the operation of regional airports such as Aberdeen but the surrounding tourist and business economy.

I will draw my remarks to a conclusion, but I say to the Minister that in an earlier exchange this week she undertook to make inquiries about a matter that I raised in the main Chamber. I was very pleased with that response and I hope that, in a similar vein, she will also look very favourably on the very reasonable asks made today by the hon. Member for The Cotswolds to encourage the Treasury to commission research to inform Ministers. That, hopefully, will lead them to a different conclusion about this matter.

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