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.
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 Lord Pickles 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?
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.
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.
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%.
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?
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.
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.
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.
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?
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.
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?
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.
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.
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.