Travel retailers deplore government U-turn on VAT-free shopping

The new chancellor’s reversal of a plan to remove VAT from airport shopping has been attacked by travel retailers.

On 23 September the then-chancellor, Kwasi Kwarteng, promised that tourists to the UK would be able to claim a VAT refund on “goods bought in the high street, airports and other departure points and exported from the UK in their personal baggage”.

The stated aim: “A modern, digital, VAT-free shopping scheme with the aim of providing a boost to the high street and creating jobs in the retail and tourism sectors.”

But Mr Kwarteng’s replacement, Jeremy Hunt, has today scrapped the measure along with almost every other aspect of last month’s “mini budget”.

Reacting to Mr Hunt’s announcement on Monday morning, Heathrow’s retail director, Fraser Brown, said: “At a time where the country needs all the growth it can get as we recover from the most difficult period in our history, this tourist tax remains a significant headwind.

“Introducing a new modern tax-free shopping incentive for overseas visitors would result in a net-gain to HM Treasury with billions more in taxable spend in retail, hospitality and leisure from millions more tourists each year.

“Doing the opposite would cause further regression of high streets, shopping centres, ports and airports as we continue to lose out to our European competitors.”

The chair of the UK Travel Retail Forum, Nigel Keal, said: “The government’s latest U-turn on tax-free shopping is a huge blow to the travel retail industry and the airport community.

“With the recovery of international travel still delicate, last month’s announcement of a new airside VAT-free scheme offered our sector hope for the potentially difficult months and years ahead.

“The UK is one of the only major economies not to have a VAT-free shopping scheme in place, making us globally uncompetitive.

“We are incredibly disappointed that the government has already turned its back on its pledge, which was unanimously welcomed by businesses and passengers alike.”

VAT refunds were ended on 1 January 2021, the day the UK fully left the EU, by the then-chancellor, Rishi Sunak.

Joss Croft, chief executive of UK Inbound, said: “The decision to reverse plans to reintroduce VAT-free shopping for international visitors will come as a hammer blow to UK tourism and the British high street.

“This short-sighted move is based on incomplete, one sided and unrealistic projections and risks putting a brake on the return of international visitors who are vital drivers of economic growth throughout the UK.”