A recent economic analysis has revealed that the tourist tax in the UK is deterring two million foreign visitors and costing the economy over £11 billion in lost GDP. The tax, which involves the removal of VAT-free shopping for international visitors after Brexit, is aimed at keeping money within the country and avoiding the sole benefit to visitors from abroad. However, studies have disproven this claim, with the Centre for Economics and Business Research (CEBR) finding that restoring the VAT-free scheme would actually generate additional revenues that would outweigh the cost of VAT refunds by £2.5 billion.

Over 420 business leaders, including major figures from well-known brands such as M&S, Harvey Nichols, Primark, Jigsaw, Kurt Geiger, Heathrow, Gatwick, Burberry, Bicester Village, and Mulberry, have expressed their opposition to the tourist tax through an open letter to Chancellor Jeremy Hunt, labeling it a “spectacular own goal”. MPs from all parties have also joined in the calls for the government to reverse its current strategy.

The CEBR utilized tourist data from the previous week to examine the impact of the decision to abolish the VAT-free shopping scheme for tourists in 2021. According to their analysis, reversing this decision would provide a significant boost to the public finances, as tourists contribute significantly to the economy across various sectors such as retail, hospitality, transportation, and the arts.

Recent data from the Office for National Statistics indicates a rebound in tourist numbers after the pandemic, with 10.9 million overseas residents visiting the UK in Q3, marking a 9.3% year-on-year increase. These visitors spent a total of £10.1 billion, representing an 11.2% rise compared to the previous year. However, these numbers are still lower than pre-pandemic levels when VAT-free shopping was still in effect. In Q3 2019, 11.9 million overseas residents visited the UK, indicating a shortfall of 1 million visitors since the pandemic. Additionally, with the abolition of VAT-free shopping, the UK can no longer attract visitors from the EU who would have enjoyed tax-free shopping, potentially stimulating visitor numbers and further boosting the economy.

The CEBR estimates that if the UK had maintained tax-free shopping, visitor numbers in Q3 would have been 589,000 higher, with an estimated £1.3 billion increase in their total spending. The wider economic impact of this additional expenditure would have resulted in an extra £3.5 billion in GDP for the quarter and an annual boost of £11.1 billion. The CEBR’s analysis indicates that the negative impact of maintaining the current tax rules and the positive effect of reintroducing VAT-free shopping are greater than initially thought in 2023.

Sacha Zackariya, CEO of Prosegur ChangeGroup, a global provider of ATMs, currency exchange bureaux, and tax refund services, states that the government’s decision to implement this detrimental tax is hindering the economy’s recovery from the pandemic and must be eradicated at the upcoming budget in March. CEBR Managing Economist Sam Miley adds that the implementation of a tax-free shopping scheme would have helped to bridge the gap in tourism activity seen in the summer of 2023.

In conclusion, the tourist tax in the UK is having a significant negative impact on the economy, deterring foreign visitors and resulting in billions of pounds in lost GDP. The evidence suggests that reintroducing tax-free shopping for tourists would generate additional revenue and provide a much-needed boost to various sectors. It is crucial for the government to reassess its current strategy and consider the potential benefits of reversing this tax.

Useful links:
1. CEBR Analysis on the Impact of Tourist Tax
2. Office for National Statistics – Overseas Travel and Tourism Statistics