Rishi Sunak’s tourist VAT tax will kill jobs and hold back economy’s recovery from coronavirus

Jim Armitage
·6 min read
<p>Wrong, Rishi:  Savings have been grossly exaggerated</p> (ES COMPOSITE)

Wrong, Rishi: Savings have been grossly exaggerated

(ES COMPOSITE)

Since the referendum, Brexiteers have promised that leaving Europe would enable Britain to become a super-competitive global power.

Unshackled from the rules and regulations of EU trade, we would be able to unleash our potential to win new customers from around the world, far beyond the borders of Europe.

Yet the Chancellor, a long-standing eurosceptic, is nodding through massive changes in VAT rules that will make Britain far more expensive for the high-spending tourists on whom hundreds of thousands of British jobs rely.

Jobs in retail, hospitality and design that you just spent billions of pounds saving with furlough payments.

In four weeks, new laws will end the decades-old duty free regime for travellers from outside the EU. The result will be to make shopping here 20 per cent more expensive for them.

We will be pretty much the only country in Europe not to offer such perks to tourists. The Government said the move would help repair the country’s finances by saving £524 million, couching it as closing a tax loophole for the rich in London.

But that’s a phoney number.

In fact, it will have the opposite effect; deterring visitors to the whole of the UK and costing thousands of jobs.

How does that help us fight back from the Covid economic crisis?

Tourists will spend elsewhere

Shops, designers and tourism chiefs are convinced the tax will put visitors off coming to Britain and send them to Paris and Milan instead.

The majority of non-EU tourists are from their countries’ burgeoning middle classes. They’re not Asian tiger billionaires or sheikhs and princelings. They are extremely price conscious.

And the difference they’ll see in UK prices is huge. For a £10,000 watch in a Bond Street jeweller, shoppers will lose a £2,000 VAT discount. On a £1,000 Burberry coat, £200.

Ministers believe tourists are not so fickle. They say people will still come in their hordes because the pound is so weak. That argument has no logic.

<p>Shoppers on Oxford Street </p>PA

Shoppers on Oxford Street

PA

It’s a reference to the fact that, when the pound crashed after the Brexit referendum, tourism numbers to the UK hit record highs as Britain became a low-cost option.

But that highlights more than anything that foreign travellers are price-conscious.

It also assumes sterling will remain weak forever under Brexit.

That’s an odd view for a pro-Brexit government to take. Sterling is weak because the world’s investors believe leaving the EU will damage our economy for the long term. Surely if Brexit is such a good idea, its proponents must expect the economy to thrive, boosting the pound and cancelling out the currency’s discount effect on UK prices.

France is already taking advantage

Proof of how illogical Britain’s thinking is has been amply exposed by French President Emmanuel Macron.

Within days of Britain announcing the plan, he declared visitors should come to France instead, and slashed the value of goods on which VAT can be reclaimed from 175 euros to 150 euros.

Ireland is planning something similar.

Treasury’s maths is all wrong

When Rishi Sunak announced the move in September, he said Britain would get back £528 million in taxes.

Even if that were correct, such a saving is tiny in Treasury terms, and will be outweighed many times over by the taxes lost from tourists staying away.

Factoring in all the lost spending on hotels, restaurants and shopping, the real loss to the Treasury will be about £3.4 billion and the total loss to the UK economy around £6 billion, according to analysts Global Blue.

If you could buy a handbag for 20% less in Paris, why wouldn’t you?

Anne Pitcher, managing director of Selfridges

Selfridges has stores in London, Manchester and Birmingham and we welcome international customers throughout the year.

We know what our customers want and we have invested millions of pounds in our business and created thousands of jobs to meet those needs.

We know, for example, that our Chinese customers are price sensitive and choose their travel destinations based on the shopping available.

If you could buy a handbag for 20 per cent less in France, why wouldn’t you?

We know from our middle-eastern customers, who love to eat out in London and stay in hotels, that they will shorten their stays here to spend more time in Europe.

Visitors come to the UK for the shopping, but they also come for the culture and the hospitality.

We are only one part of a much larger tourism eco-system that welcomes and supports visitors to the UK.

Instead of building back better, the consequence of cancelling tax-free shopping as explained to the Government is that an estimated 40,000 jobs will go from these industries.

The Treasury has dismissed concerns raised by retailers and businesses and has refused to accept figures provided by respectable sources.

Following the spending review, the Office for Budget Responsibility reported that the Treasury has overestimated the savings to the Exchequer and that even the lower estimate is “highly uncertain”.

We would ask the Government to do what it can to make the UK competitive and attractive as people begin to travel again.

As we finish off an extraordinary year with Brexit, we ask the Treasury to pause and review the decision to cancel tax-free shopping.

The Government’s figures were disputed last week by its own Office for Budget Responsibility. In the smallprint with Sunak’s comprehensive spending review, the OBR said the short-term saving would be only £350 million, not £528 million.

The Treasury select committee has written to the Financial Secretary, Jesse Norman, expressing grave concern over why the Government has still not published a proper impact assessment for such a significant move. What have they got to hide?

Jobs to be lost across UK

The Government spins the move to its new-found voters in the North as a way of wringing taxes from wealthy London. It says focus groups approve it.

But the loss of those big-spending tourists risks tens of thousands of jobs across the UK. True, 60,000 will go in London, but thousands more will be hit in shops, hotels and restaurants in other tourist hotspots. York, Manchester, the Cotswolds, Edinburgh.

It’s not just the shops who will suffer. Thousands of skilled craftsmen making luxury goods around the UK will be hit. Mulberry makes its handbags in Somerset. Burberry and Barbour make coats in Yorkshire and Tyne and Wear. Church’s makes its shoes in Northampton. These are the very items tourists love to buy here.

The alternative

The Treasury argues it cannot reverse the decision to scrap tax-free for non-EU visitors because that would mean extending it to the rest of the EU after Brexit. We would lose £900 million of taxes, it says.

But, as with its bogus £528 million figure, this ignores the fact that if we offered them duty free, more would come, boosting hotels, restaurants and shops, and bringing in additional tax.

Why not, as we leave the EU and try to fight our way out of the Covid economic nightmare, give the country a boost of new, big spending tourists to soften the blow?

The whole idea has been rushed through with barely any consultation. At the very least, it must be paused until alternatives can be considered.

Kicking shopworkers, chefs and craftsmen when they’re down simply makes no sense.

If you care about the thousands of jobs and livelihoods to be hit by this tourist tax, help make a change by signing the petition at https://petition.parliament.uk/petitions/555140.

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