The financial secretary to the treasury, Nigel Huddleston, has warned that a u-turn on the tourist tax is unlikely to be announced in the spring Budget.
Chancellor Jeremy Hunt reportedly ordered a review into the scheme this month after a mass of calls from business leaders demanding a reversal, which led many to believe the Treasury was considering a change.
However, in correspondence seen by The Times, Huddleston, the minister responsible for the tax system, said it was “not possible to introduce the same system as before, given that it would now need to be open to visitors from the EU as well as the rest of the world”.
“Any new scheme, no matter the design, would take time to legislate for and implement in order to prevent non-compliance risks and ensure operation,” he said.
In a letter sent to one of the leaders of the tourist tax campaign, he added that the chancellor has been “clear that being responsible with the public finances is a key priority”.
He said: “A new VAT-free shopping scheme could subsidise a large amount of tourist spending that already occurs without a tax relief in place, without bringing any direct benefits to the British public.”
Huddleston was responding to a letter to the chancellor from Sacha Zackariya, chief executive of ChangeGroup and Prosegur Change, a British-based retail foreign exchange and bureau de change company.
Zackariya called for a reversal and suggested the British economy could be boosted by capitalising on tourists visiting the Paris Olympics and “encourage them to visit the UK at the same time and benefit from the same VAT refund scheme they would otherwise be able to access in Madrid, Paris, Berlin or Milan”.
British Retail Consortium director of business and regulation Tom Ironside said: “This is bad news for the UK economy.
“It is increasingly clear that, as the only European country without a tax-free shopping scheme, the UK is missing a golden opportunity to boost tourism and the wider economy.
“Tax-free shopping not only convinces tourists to buy more but also attracts shopping tourism, supporting businesses and jobs in the UK.”
The Office for Budget Responsibility had previously estimated that restoring VAT-free shopping would cost the Exchequer £2bn.
It has been asked to review its original 2020 costing of the end of tax-free shopping “with an aim of publishing its conclusions alongside the spring Budget”.
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