Hunt authorises OBR review of ‘tourist tax’

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Jeremy Hunt has ordered Whitehall’s fiscal watchdog to review the “tourist tax”, raising campaigners’ hopes that the chancellor is poised to reverse the policy.

The Conservative government scrapped VAT-free shopping for international visitors to the UK in 2020 in an attempt to raise more money for the exchequer. But business groups have warned that the measure has put the UK at a big competitive disadvantage compared with other shopping destinations across Europe.

Recent data analysis has suggested that the UK is losing out on high-spending international visitors, raising questions over whether the tax change has increased the exchequer’s revenue or not.

Richard Hughes, chair of the Office for Budget Responsibility, said the body had been asked by the Treasury to “examine the costs and benefits” associated with the tax.

In a letter to Sir Geoffrey Clifton-Brown, a Tory MP who is campaigning against the tax, Hughes said the results of the review would be published alongside the Spring Budget in March.

“I can commit to reviewing the original costing of this measure, including in the light of subsequent evidence on international visitor numbers and their consumption patterns and the analysis carried out by a number of outside bodies,” he said. “We will undertake this analysis in the first months of 2024.”

While the Treasury has estimated that it would cost £2bn to restore VAT-free shopping, Hughes said the figure did not come from OBR analysis.

The Treasury refused to comment on whether the measure would be reversed in the Budget. “We keep all taxes under review and recognise the value that retailers bring to Britain,” it said. “VAT-free shopping remains available for all non-UK visitors buying items in store and having them sent directly to their overseas address.”

Hunt is expected to cut taxes in the Budget but the chancellor recently sought to manage expectations about the scale of any giveaway, warning: “It doesn’t look to me like we will have the same scope for cutting taxes in the Spring Budget that we had in the Autumn Statement.”

A cross-party group of 64 MPs and peers have written to Hunt urging him to bring back tax-free shopping for overseas visitors. Clifton-Brown told the Financial Times: “Bringing back VAT-free shopping would be economically positive in every way, both to the Treasury and to all traders involved, it would be a no-brainer.”

Business leaders have stepped up their campaign to end the tourist tax and will hold a roundtable on Monday at Heathrow to raise the profile of the issue.

Shevaun Haviland, head of the British Chambers of Commerce, along with Tina McKenzie, advocacy chair of the Federation of Small Businesses, said in a joint article in the Sunday Times: “The UK being the only country in Europe not to offer a proper tax-free shopping incentive to visitors makes the country an uncompetitive, unattractive place to spend and do business.”