Lord Vaizey of Didcot is a Conservative Life peer who has sat under this title in the Lords since 10 September 2020. Prior to joining the Lords, he sat in the Commons as an MP, and was first elected in 2005.
I bow to no one in my admiration for Rishi Sunak. Taking up the toughest of jobs at the toughest of times, he has played a blinder. Job Support Scheme, Bounce Back Loans, Eat Out to Help Out. Even though I’m not an MP any more, I know from talking to my former constituents how much this help has been needed and welcomed.
But with the Government having to make so many decisions so quickly, it’s unlikely everyone will be bang on the money. Even in normal times (remember those?) we occasionally saw unintended consequences.
I’m afraid to say that the Treasury decision to end tax-free shopping for international visitors at the end of December is one of those decisions. At the moment, visitors can reclaim the VAT on stuff they buy here. From January, this will be stopped.
I can see why the Treasury thought it was a clever wheeze. They think it will only affect a small group of very wealthy people. If it hits anywhere, it will hit Bond Street and Bicester village – not exactly marginal vote territory.
But there’s a problem. These wealthy visitors don’t just shop – they eat out, they go to museums and the theatre, stay in hotels. They also travel outside London, visiting places like York and the Lake District.
Also, the posh stuff they buy is often actually made here. Yes folks, those Burberry suits are made in Yorkshire. And those French Chanel jumpers are actually made in Scotland. Which is why we are now in the weird position of the SNP Finance Minister calling out a Tory Chancellor for not backing British business.
The Treasury assumptions, which I have seen, act as if the vast majority of visitors will still come, so the Treasury will make a net gain from them paying VAT. But why should they when we will be the only country in Europe not offering VAT-free shopping?
As a result of this decision, they are likely to go to Paris, Milan or any other European city instead of London. In fact, a recent poll of these visitors showed that if the UK ends tax-free shopping 93 per cent would not buy goods here and 60 per cent wouldn’t even bother visiting post the pandemic. Maybe that’s why the French are giving them a nudge by lowering their VAT free threshold the day after the Treasury took the decision.
It doesn’t take many visitors to change their plans. 13 per cent of all-tax free shoppers account for 44 per cent of all tax-free sales. All it takes is for a small proportion of high-spending international tourists to go elsewhere before the impact is felt. The end result is an increase in job losses.
Retailers, hoteliers and airport chiefs from all over the country have warned that scrapping tax-free shopping for international tourists has put 70,000 jobs in jeopardy. The decision is a big blow to the regions. Tax-free shopping supports 1,800 jobs in Edinburgh and 1,200 jobs in Manchester alone, and the money spent in London stores helps high streets throughout the UK.
Most flights from the UK’s regional airports are to and from Europe. Stores in Birmingham and Manchester had hoped to double sales to EU visitors on the understanding that tax-free shopping would be extended to EU countries once we’d left the bloc. Now the likes of Selfridges and Marks & Spencer are warning the impact it will have on jobs across the country instead. This is not what those workers voted for.
If allowed to go ahead, the decision to end tax-free shopping for international visitors will put Global Britain at a competitive disadvantage and result in thousands of jobs losses. I hope our pragmatic Chancellor will think again.