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Chancellor warned ending tax-free shopping for tourists a "clear and present risk"

Lauretta Roberts
01 November 2020

Scottish business leaders have joined the growing chorus to urge Chancellor Rishi Sunak to reverse plans to scrap VAT-free shopping for overseas visitors to the UK saying the move poses a “clear and present risk”.

They have written to Chancellor Rishi Sunak to demand he “urgently reconsiders” axing the scheme – which allows international tourists to reclaim the VAT on goods which are purchased, but not consumed, in the UK. The Scottish Government has already urged Sunak to think again on the issue.

The latest plea comes as the non-essential retail sector is once again hit by coronavirus, with a new national lockdown about to be imposed in England, a five-tier series of restrictions in place in Scotland and circuit break shutdowns underway in Wales and Northern Ireland.

Scottish business leaders warn that ending VAT-free shopping will “drive away” some of the “very price-sensitive international tourists who come to Scotland”. The group – which includesScottish Chambers of Commerce chief executive Liz Cameron, Scottish Retail Consortium director David Lonsdale and Scottish Tourism Alliance chief executive Marc Crothall – now wants the Chancellor to consider the impact the change will have on businesses and “particularly employment in Scotland”.

Willie Macleod, executive director for Scotland at UK Hospitality, has also signed the letter, along with bosses from firms including jewellers ROX and Hamilton and Inches, and upmarket retailers at the House of Bruar in Perthshire and Harvey Nichols in Edinburgh.

They told the Chancellor that while the coronavirus pandemic has been “hugely challenging” for the sector, they have “worked hard to adapt and protect as many jobs as possible”.

They added: “That is why we are deeply concerned at the Treasury’s decision to abolish the VAT Retail Export Scheme and airside extra-statutory concession supporting tax-free shopping for international tourists from the beginning of next year.

“At a time when both Westminster and Holyrood have been making efforts to help businesses survive, this represents a clear and present risk of reduced sales for the retail and other industries, together with overall tax revenues to the Scottish and UK Exchequers.

“The changes will drive away a number of very price-sensitive international tourists who come to Scotland to shop, stay in prime visitor accommodation, and enjoy our fantastic cultural venues at the same time.

“Many of these tourists may begin their holiday in Edinburgh or Glasgow but then head across Scotland to Stirling, Perth, the Borders, Inverness, Skye, or many other places besides.

“We respectfully submit that further consideration should be provided by HM Treasury to the full impact upon business, particularly employment in Scotland.”

A Treasury spokesman said: “Around 92% of visitors to the UK don’t use the VAT Retail Export Scheme and extending it to the EU could increase total costs up to £1.4 billion a year.

“The VAT Retail Export Scheme is very unlikely to act as a significant motive for visiting the UK. For the minority who do use the scheme, administration fees are often substantial, and tax-free shopping is still available in store when goods are posted to overseas addresses.

“Countries like New Zealand and Canada remain popular tourist destinations without using the scheme.”

The luxury industry has been lobbying hard to urge Sunak to reconsider with industry body Walpole leading the campaign. Leading retail chiefs from brands such as Superdry, The White Company, Mulberry, Marks & Spencer and Fenwick, have all put their names to letters calling for the scheme to remain in place arguing it risks hitting a much needed retail and tourism recovery post-pandemic.

Retailers had hoped the scheme would be extended to visitors from the EU after the Brexit transition period ends on 31 December, but their hopes were dashed when Sunak scrapped the scheme altogether.

International visitors will still be able to shop VAT-free in-store but the goods must then be shipped to their homes meaning they will be taxed on arrival, removing the VAT-free benefit.

The Government has argued the current scheme, where shoppers can claim back tax in stores and in airports and take the goods away with them there and then, is too costly to run and would become more so if EU countries were added.

Around £3.5 billion is spent in the UK every year on tax-free shopping – at a cost to the Treasury of £500 million.

According to a recent letter sent to Sunak, the Government’s decision means losing out on an extra £2.1 billion of sales from visitors from the EU who after Brexit would have been eligible for the scheme – meaning that the total hit to the economy of the move is £5.6 billion.

Total annual spending by international visitors in the UK is more than £22 billion each year, so any reduction in the UK’s appeal for holidaymakers and visitors will have significant financial consequences, the letter argued. They also argued that scrapping the scheme could lead to the loss of 70,000.

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