UK Chancellor Jeremy Hunt unswayed by damning Parliamentary report on duty-free U-turn

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The UK government has two months to respond to a scathing report by a parliamentary committee on October 24 which said the abolition of tax-free shopping was “both myopic and incredibly damaging”. However, the government seems to be stubborn despite evidence that scrapping the VAT refund scheme could be its own goal.

Jeremy Hunt, Britain’s fourth Chancellor of the Exchequer in just three months, reversed the decision of his predecessor Kwasi Kwarteng to bring back a version of the UK’s retail VAT export system for overseas visitors, which allowed them to save 20% on their purchases. Kwarteng’s decision was also a reversal of a decision by Rishi Sunak, when he was Chancellor, to drop out of the scheme at the end of 2020 under Boris Johnson.

With this political about-face within the Conservative Party, the report, titled Promoting Britain Abroad, could have been seen as an opportunity to get a balanced and objective view. It comes, after all, from a cross-party Committee for Digital, Culture, Media and Sport (DCMS) appointed by the House of Commons.

The British Treasury does not seem eager to engage on the subject. When asked if Hunt would review the report (and his decision) ahead of his autumn statement, scheduled for November 17, a Treasury spokesman told me: “The Chancellor has made it clear that public finances of the UK must be on a sustainable path. As part of the UK’s commitment to fiscal discipline, the government will not proceed with plans to introduce a new VAT-free purchase scheme.

“Inadequate cash analysis”

It seems that the government, now with Sunak as Prime Minister, has made its decision and does not need two months to respond to the report. The decision not to proceed with a new VAT-free shopping scheme was included as part of Hunt’s reversal mid-October almost all the tax measures announced by Kwarteng on September 23, but which have not yet been legislated in parliament.

These reversals helped stabilize the faltering British economy. However, the DCMS report is scathing about the abandonment of the tax-free regime for foreign buyers. He says: “The government’s initial decision to scrap duty-free shopping was both myopic and incredibly damaging given how much some of our wealthiest visitors are spending in the UK. Its short-lived revival – announced at the September fiscal event, but removed in October.—serves only to underscore the inadequacy of the Treasury’s initial analysis.We have seen no evidence that the Treasury considered the effect that the loss of these visitors would have on the wider tourism economy.

Luxury shopping and its halo effect

Hunt argues that not introducing a new VAT-free shopping scheme for overseas visitors to Britain would cost around $1.5 billion in 2024 and around $2.3 billion a year from 2025. Evidence gathered by the luxury trade association, Walpole, claims that if the scheme was brought back it could attract an additional 600,000 visitors to Britain. In a reportthe association says duty-free sales have generated more than $4 billion a year for Britain and created a halo effect of more revenue within the tourism ecosystem.

“Whenever tourists shopped in Knightsbridge or Bicester Village, they were spending on accommodation, restaurants, cultural experiences, entertainment and transport. This was a particularly strong draw for visitors from China, the Middle East and the United States when choosing their travel destinations,” the Walpole study said.

Value Retail, the owner of the designer shopping center in Bicester Village, told the DCMS committee that duty-free shopping had “traditionally been a huge draw for high-spending tourists”, while Ross Baker, commercial director of Heathrow Airport Limited, believed that the Treasury had assumed that incoming travelers would continue to come and spend “no matter what”. He said: “These are faulty assumptions. Inbound travelers don’t come (because) for many, this (duty-free shopping) is a primary decision-making factor. Even if a subset came, they wouldn’t spend on retail – why would they pay 20% more? »

In his comments to the DCMS Committee, Paul Barnes, CEO of the Association of International Retail, added: “It is a big marketing ploy to say, ‘We are the only country in Europe where visitors from the Union European can come and do duty-free purchases.’ It would have been a huge draw, but instead of taking that Brexit bonus, the government just threw it away.

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