How the loss of tax-free shopping is costing Scotland dear - Sir Rocco Forte

For 60 years, international tourists visiting Scotland have been able to enjoy tax-free shopping. Guests at my hotel The Balmoral in Edinburgh would often tell me that picking up a few purchases with the promise of being able to reclaim the VAT was one of their main motivations for coming here.

Official research bears this out: Visit Britain found that shopping in our brilliant retail districts was a significant driver of tourism. Indeed, business used to make £3.5bn in tax-free sales to tourists every year.

And of course, tourist expenditure went way beyond retail – visitors would spend in hotels like mine, restaurants, bars, tourist attractions, museums, galleries, theatres, on public transport… the list of businesses that benefit from tourism in some way is almost endless.

So like many business leaders I was surprised and dismayed when in 2021 Rishi Sunak, then the Chancellor, announced that tax-free shopping was coming to an end. At a stroke, this made us the only country in Europe not to offer tax rebates for tourists – every single country remaining in the EU still does so.

That left us in the absurd position of not only denying tourists the chance to snap up the traditional cut-price bargain, but also incentivising British people to go to Dublin or Paris to make purchases at 20 per cent less than they would now have to pay here. Some of us warned at the time that this was likely to backfire but were ignored.

It is now clear that Mr Sunak’s decision is turning into the most spectacular economic own goal.

My hotel group has properties across Europe and unfortunately tourists are simply not returning in the same numbers to Scotland as they are elsewhere in Europe.

Many of our international guests are now cutting the amount of time they spend in Scotland and adding on a quick trip to Paris, Berlin, Milan or Dublin to do the shopping that they would traditionally do here.

When challenged on the issue, Mr Sunak claims that the £2bn a year tax break became unaffordable and only benefited a few luxury stores in London’s West End.

This is plain wrong – and extremely disappointing from the leader of a party that has previously liked to claim to be the friend of business. First of all, it is completely short-sighted to look narrowly as the Treasury does at the cost of the VAT rebate. Of course, you need to consider the broader economic benefits that high-spending tourists bring to our whole economy in the round.

Second, the suggestion that this only affects a handful of high-end outlets in London has been shown to be false.

I have organised an open letter to the Chancellor calling for what we have dubbed ‘the tourist tax’ to be scrapped. So far, 350 business leaders have signed – including many businesses based or with outlets in Scotland. These include Gleneagles, Glasgow, Edinburgh and Aberdeen Airports, Essential Edinburgh, Johnstons of Elgin, Chauffeur Tour Scotland and The Glenturret.

Leading UK-wide brands with outlets in Scotland have signed too – ranging from Harvey Nichols to Marks & Spencer to Primark. The breadth of support demonstrates that this is a UK-wide issue and one that is affecting every high street. It is very depressing to see that a great brand like Mulberry has just closed the doors of one of its flagship stores as a direct result.

Normally, many of the business leaders who have backed the campaign are very reluctant to become involved in political issues. So the fact they have felt moved to do so on this issue should make the Government stop and think. The chorus of criticism is overwhelming and a responsible Government should not be ignoring it.

The Treasury has privately indicated that it is open to evidence that this policy is backfiring. So I, together with some of the other signatories to the open letter including Watches of Switzerland, commissioned a report by independent economic analysts to examine all aspects of this issue.

The Centre for Economics and Business Research concluded that the tourist tax is costing the UK £10.7 billion in lost GDP and deterring two million extra foreign visitors a year who would otherwise be here spending money throughout the economy.

If the traditional VAT rebate scheme for tourists was reintroduced, there would be a clear overall benefit to the public finances. For every £1 refunded in sales tax to foreign tourists, the exchequer would gain £1.56 in other taxes thanks to the dynamic economic effects of tourist expenditure.

The additional revenues generated would outweigh the losses associated with sales tax refunds by £2.3 billion in 2023, the report found.

There would also be a positive impact on employment. A fully utilised tax-free shopping scheme would have supported an estimated 201,000 jobs this year.

So, we now have economic analysis showing very clearly that restoring tax-free shopping would be a boon to the public finances and the wider economy.

Unhappily, the UK Government is struggling to achieve any positive economic growth at all. In this situation, it makes no sense for Scotland or the UK to go on sending high-spending tourists into the arms of rival economies. Mr Sunak’s policy means everyone working for a business that depends on the tourist economy is operating with one hand tied behind their back.

The Chancellor must use the autumn statement in a few weeks’ time to announce an immediate return to tax-free shopping.

Sir Rocco Forte is chairman, Rocco Forte Hotels