Pressure piles on Rishi Sunak to scrap tourist tax…as French ask why London is ‘shooting itself in the foot’

Published: 4 December 2020

Post Desk : Chancellor Rishi Sunak faced growing pressure from Tory MPs to scrap his tourist tax on overseas visitors on Friday as suspicions grew that the Treasury had failed to assess the damage it could cause to jobs and other tax revenues.

The clamour intensified after a senior official from the Office for Budget Responsibility admitted to MPs that the wider impact on tax revenues from hospitality were “not reflected” when it estimated a £360 million windfall for the exchequer from the tax change.

MPs from all major parties and across the UK pleaded with the Chancellor to delay the scrapping of VAT-free retail purchases for non-EU tourists to allow a full review, warning that the change risks killing-off retailers, traditional manufacturing jobs and hoteliers in every region.

Business leaders on the Continent expressed astonishment and delight at the British decision, predicting a boom in tourism spending in their markets.

Les Echos, the French equivalent of the Financial Times, said the UK Government was “taking the risk of putting London at a disadvantage compared with Paris in terms of attractiveness” and asked: “Why the hell is London shooting itself in the foot in terms of competitiveness, at the very moment when France is preparing to extend its tax refund?”

It described Mr Sunak’s move as “one of the most unexpected side effects of Brexit” and said “in Paris and Milan, meanwhile, everyone is rubbing their hands”.

Mayor of London Sadiq Khan waded in by branding the tax “a damaging mistake” whose negative effects would be felt not only in the luxury goods stores of the West End but “up and down the country”.

Writing in Friday’s Standard he urged people to join the protest “before it’s too late” and warns: “This could cost up to 41,000 jobs at the worst possible time.” The warning came as:

* Tory MPs plan to use a Commons debate about the plight of Britain’s high streets on Thursday to call for a comprehensive rethink and to lobby communities minister Kelly Tolhurst.

* Dozens of Scottish MPs from all parties urged the Chancellor to call off the tax raid, warning that traditional manufacturers like cashmere makers Johnstons of Elgin would lose sales. Former Tory Scottish secretary David Mundell told the Standard: “There’s a lot of dispute about the figures the Treasury is using. But it is clear that making this huge change in the middle of the Covid crisis when retailers and firms have really struggled is not sensible.”

* MPs backing the UK’s vital fashion industry swung behind the campaign. Dr Lisa Cameron, a Scottish National Party MP and chair of the textile and fashion all-party group, said: “The all-party parliamentary group opposes this catastrophic government policy. It is the last thing sectors already badly damaged by Covid-19 need.”

Mr Sunak announced the so-called tourist tax —officially known as the ending of the VAT Retail Export Scheme, under which tourists from outside the EU can escape paying VAT on goods they take home – on September 11.

The Treasury said it would save £500 million at the time, but the Office for Budget Responsibility reported a net saving of £360 million at last week’s spending review.

However, even that lower figure is now doubted by MPs after OBR member Andy King was asked on Wednesday whether it took into account the wider economic impact on tax revenues.

Asked if the “tourist tax” might in fact cost the Treasury more than it brings in, Mr King said: “I am afraid I haven’t looked at that specifically, so I don’t have an answer for you.” A Treasury spokesman said: “As we’ve consistently said, extending VAT Retail Export scheme to the EU would mean subsidising the shopping of EU visitors at a cost of over £1 billion.”