Asked by
To ask His Majesty’s Government what is their assessment of the
impact on the United Kingdom economy of the abolition of tax-free
shopping.
(Con)
My Lords, as part of the reversal of almost all the tax measures
set out in the growth plan, the Government are not proceeding
with plans to introduce a new VAT-free shopping scheme. The
Office for Budget Responsibility’s assessment of the withdrawal
of the previous VAT-free shopping schemes showed that this would
raise a significant amount of revenue and have a small and
limited behavioural effect on tourists’ decisions to visit the
UK.
(Con)
My Lords, is my noble friend the Minister aware that, far from
costing the Treasury £2 billion a year, reintroducing tax-free
shopping would net the Treasury some £350 million a year?
Tax-free shopping supports many important industries in our
country, such as Harris tweed—as so brilliantly sported by my
noble friend in support of my Question. The
introduction of tax-free shopping is supported by the left-wing
Mayor of London and the left-wing SNP. In this country we are
lucky to have numerous new Governments; whether it is levelling
up, growth or economic stability, tax-free shopping supports all
three. Will the Minister reconsider the Treasury’s nonsensical
decision to abolish it?
(Con)
Well, what I can say is that, on 28 November, HMRC and HMT
officials held a round table with industry stakeholders to
collate feedback on the Chancellor’s decision to withdraw the
introduction. As I indicated in my initial Answer, evidence from
VisitBritain continues to show that the key motivators for
tourists visiting the UK are our rich history and heritage and
vibrant towns and cities, and less so shopping.
The (CB)
My Lords, international tourists used to make up half of
Mulberry’s trade in London; now it is almost none. Does not that
immediately tell the Government something about the significant
effect this is now having on the tourist trade? European cities
will be the winners and we will be the losers unless the
Government change their mind.
(Con)
I do not agree with the noble Earl. Introducing VAT-free shopping
would come at a significant fiscal cost because it would
subsidise a large amount of tourist spending that already occurs
without any relief in place. This is supported by OBR estimates
which found that the withdrawal of the previous schemes would
reduce visitor numbers by only 0.07%.
(Lab)
My Lords, do the Government understand that it may not affect the
number of tourists who come to the UK, but they will stop
spending in the shops and that will be lost revenue? Will the
Minister not reconsider this matter?
(Con)
Well, it has been considered—as I say, we had a round table in
November—and the benefit is pretty marginal. As far as I can tell
from walking around London, the visitors are still flooding into
Britain. We also need to look to next year, when we have the
Coronation, and remember that we must look after the visitors who
come here. But, as I pointed out, the actual benefits are
marginal.
(LD)
My Lords, will the Government consider doing a proper
cost-benefit analysis of this, which they have never done? Small
shops are very much reporting that the actual spend has dropped
very significantly. At a time when retail is under so much
pressure, that additional loss will drive people out of
business.
(Con)
We do not have any plans to analyse this further. As I have said
before, fewer than one in 10 non-EU visitors used the previous
VAT-free shopping scheme, indicating that it is really not a pull
factor for tourists. Canada and New Zealand also do not offer
this type of tax-free shopping on the high street, and the USA
does not have a countrywide system, yet all these countries are
popular tourist destinations.
(Con)
My Lords, the Treasury has a long history of downplaying the
secondary effects of tax reductions. It has done it on
corporation tax and the IR35. Oxford Economics tells us that 1.6
million visitors are attracted by VAT-free shopping. All those
queues of people from China outside Harvey Nicks, Bicester
Village and so on are bringing much- needed revenue to our
economy. Will my noble friend the Minister ask his friends in the
Treasury to reconsider the dynamic effects of this and other tax
cuts?
(Con)
We have no plans to reconsider this. I know that about 80% of the
effect of this is on retailers—for whom I have some sympathy, I
should say—in London, and 10% in Bicester Village. It is very
much focused on those areas and we do not have any plans to
rethink it.
(Con)
My Lords, is it not sending quite an unwelcoming message to our
European and American friends if, when they come here, they do
not get VAT back, but when we shop in America or any country in
the European Union we get their VAT back?
(Con)
Yes, but it comes back to the initial analysis by the OBR, which
is very clear. As my noble friend will be aware, there was a
judicial review in May 2021 and the judge ruled very much in the
Government’s favour. There was also a very clear vote in
Parliament on the matter, so I too am very clear on it.
(Lab Co-op)
Can the Minister tell us whether the effective devaluation of the
pound against the euro and the dollar is a subtle way of
attracting tourists?
(Con)
The noble Lord is ingenious in what he brings up. It is fair to
say that the value of the pound has helped in bringing tourists
to London. I say again that London right now is full of people
from abroad walking around—and also from the domestic side,
despite the fact that the cost of living crisis is hitting the
most vulnerable and we are very aware of that.
(Con)
My Lords, why does my noble friend not exercise a little
imagination? He referred to the Coronation; people will flock to
this country. Let us have a Coronation bonus period to see
whether this really works. I am sure he will then be
converted.
(Con)
I take note of what my noble friend says but, as I say, we have
no plans to change this policy.
(Con)
My Lords, is my noble friend not immensely encouraged by the
enthusiasm for tax cuts on the Opposition Benches?
(Con)
My noble friend makes an excellent point.
(CB)
My Lords, the arguments for tax-free shopping range from a £2
billion cost to the Treasury to a £4 billion benefit to the wider
economy; I cite the recent survey from Oxford Economics. Whatever
the truth, given the dire need for economic growth, surely it
falls on the Treasury to at least review these important
numbers.
(Con)
I can go this far, which the House will take at face value: of
course, all taxes remain under review. The estimated cost of
introducing a new scheme was around £2 billion per year. Although
this would have stimulated additional retail spending, which HMRC
estimated to be around £2 billion to £2.5 billion, it is a
substantial cost to UK taxpayers and the relief would subsidise a
significant number of purchases that occur without any relief in
place, as I mentioned earlier.
(Lab)
My Lords, while it might not have been the primary driver of
tourism into the UK, tax-free shopping certainly incentivised
extra spending during people’s stays. It was right to scrap the
chaotic mini-Budget, but can the Minister understand the
frustration of retailers who have argued for years for the
scheme’s return, only to have their reward taken away because the
Conservative Party crashed the economy?
(Con)
As I said earlier, on a serious note I have some sympathy for
retailers—we admit that they will see some falling off of
business—but I have made it quite clear that this is very much
focused on London and Bicester Village. Having said all that, I
live near Bicester Village and the queues going in on Sunday were
enormous. Evidence from VisitBritain continues to show that the
key motivators are still not to do with shopping and much to do
with coming to see our excellent sights around the country.
(Con)
In my noble friend’s Answer to our noble friend Lord Vaizey, he
said this had been decided at a round-table meeting in the
Treasury. Could we know who the people around this table are? Are
they shoppers? For the record—please do not take offence at
this—I would like to know the gender of this circular table.
(Con)
Hopefully, I made it clear that the round table was for industry
stakeholders to collate feedback on the Chancellor’s decision.
There were three main concerns, which I am not going to go
through. It was really to show that the Government remain in
listening mode and taxes remain under review—which is true—but we
do not have any plans to change this policy.
(GP)
Perhaps I can come in and defend the Minister for a moment. We
should actually be thinking about shopping less. I am so sorry to
say this to a bunch of such dedicated shoppers, but we should
make do with less and understand that the climate crisis means we
should perhaps want to possess less as well.
(Con)
I am almost tempted to agree with the noble Baroness—but, no, we
want to encourage people to shop. On the matter of tourism
itself, I am pleased to say that inbound tourism bookings were at
about 70% of 2019 levels for the first half of the year. Although
I admit our recovery is slower than that of a number of our close
international competitors, there is a bit of a nuanced picture
because, as I alluded to earlier, domestic tourism has seen a
better recovery trajectory than inbound tourism levels. So watch
this space; as I said, it is a slightly better picture than has
been made out from certain quarters.
