'Spectacular own goal' - Business leaders demand Reeves reinstate tourism tax break

Hundreds of business leaders representing firms and organisations including Edinburgh’s Business Improvement District and the chairman of Rocco Forte, owner of the capital’s landmark Balmoral hotel, are demanding the return of tax-free shopping to boost tourism to the tune of £11 billion.

Brian Duffy, the Scots-born chief executive of the Watches of Switzerland Group, is also among the 300 or so who have signed an open letter to the Chancellor ahead of the Budget calling the current tax situation “a spectacular own goal” that is deterring many potential visitors to the UK.

The signatories tell Rachel Reeves that if she is serious about promoting stronger economic growth, she must reverse a position which means the UK is now the only country in Europe that does not offer tax-free shopping to tourists, leaving British businesses at a “massive global disadvantage”. They estimate that it is costing the economy in excess of £11bn in lost gross domestic product (GDP).

A general view of the Festival crowds on Edinburgh's Royal Mile. Independent economic analysis suggests that tax-free shopping for tourists stimulates economic growth.

The traditional tourist VAT break, which had been in place for decades, was scrapped by the then Chancellor Rishi Sunak in 2021. Analysis by the Centre for Economics and Business Research (CEBR) concluded that not only would restoring the tax break be affordable, but that the cost would be far outweighed by the stimulus in tourist spending in other areas, including hospitality, restaurants, transport and the arts.

According to the study, visitor numbers could have been two million higher across last year if a tax-free shopping scheme had been in place, while in terms of the GDP impact, additional expenditure would have equated to an output boost of £11.1bn.

Sir Rocco Forte, chairman of Rocco Forte Hotels, said: “The case for restoring the traditional tax-free shopping scheme for tourists is overwhelming. It makes no sense for the UK to be the only country in Europe that doesn’t offer sales tax rebates to tourists. Independent economic analysis shows that scrapping the tourist tax would more than pay for itself because of the tourist spending that would be stimulated in hotels, restaurants, tourist attractions, taxis and the like, with an £11bn boost to GDP.”

Duffy added: “The UK retail sector is a major employer and contributor to the UK economy. Shopping is a significant priority for the itineraries of visiting tourists. The new Labour government says that growth is its priority. Bringing the UK in line with other counties and removing the tourist tax would make an immediate positive impact on UK economic growth.”

The signatories to the open letter also include Heathrow, John Lewis, Mulberry, the Royal Opera House, Fortnum & Mason, the British Retail Consortium and the British Fashion Council.

Meanwhile, three-quarters of the UK’s small and medium-sized enterprises say that the upcoming Budget will directly impact their future growth plans, according to research from specialist lender Simply Asset Finance. Just 15 per cent expect the Chancellor’s October 30 statement to have no impact on their growth plans.

Mike Randall, chief executive at Simply Asset Finance, said: “It’s evident that the government does not yet have the full confidence of UK business, but the Budget is an opportunity for that to be tackled head on.”

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