More than 150 businesses, including those at Heathrow airport, such as Harrods and Burberry, have signed an open letter to the UK government demanding it brings back tax-free shopping for tourists.
The policy allowed overseas visitors to reclaim the Value Added Tax (VAT) on shopping done in high street stores, airports and other departure points from the UK, it was equivalent to a 20 percent refund.
The UK is currently the only major country in Europe that does not offer tax-free shopping for tourists. Britain's largest airport Heathrow says that 18 of its stores – including luxury designer Mulberry and watchmaker Rolex – have closed as a direct result of the current tax policy and that it is a hindrance for investment.
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Harrods' Managing Director Michael Ward says that UK retail businesses need to now work three times as hard to entice tourists and he is concerned the country will miss out on the rebound in tourism from China, which is one of the world's top five markets for European tax-free shopping.
The perk was scrapped when Brexit was finalized in 2021, and although it briefly returned as part of the mini-budget during Liz Truss's short-lived premiership, Jeremy Hunt again axed it when he took over as UK finance minister.
The government says that abolishing the VAT discount on shopping saves the economy $2.5 billion a year. But Oxford Economics has found that reintroducing it would bring in a $5 billion boost to the UK economy and sustain 80,000 jobs.
'A great mistake'
John Dickie, CEO of BusinessLDN which represents hundreds of London-based businesses, says the UK government failed to take into account the wider benefit that tax-free shopping brings to the economy.
"I think it's a great mistake because it's made the attractiveness of coming to the UK as a destination that bit less," said the executive.
"The government looked at how much it would cost to give VAT refunds but they didn't look at all of the benefits that they would get from tourists spending in hotels, in restaurants, in cultural activities. But critically they also didn't think that tourists would change where they went if we got rid of VAT-free shopping.
"If you are a person in Beijing thinking, where shall I go to visit in Europe, if you go to Paris, Madrid or Milan you can get around 15 percent of your spend back, if you come to London, you can't. They didn't take into account these dynamic aspects of people's choices and that's why we think the treasury's numbers are simply wrong," he added.
Tourism tax refund company Global Blue found visitors from Gulf countries spent 35 percent less in the UK last year than they did in 2019, but in comparison, they spent 50 percent more in France, and two thirds more in Italy.
Analysts expect King Charles' coronation to bring in around $1.3 billion for the UK economy but some retail businesses argue that this figure could have been a lot higher if tourists had the incentive to shop tax free during their stay.
The UK government says it has no plans to rethink its policy and that a change would mean taxes have to increase. But there is growing pressure on Prime Minister Rishi Sunak from the retail and tourism industry to act before London loses its crown as one of the world's most popular shopping cities.
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