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Walpole Comment

Office of Budget Responsibility confirms Treasury’s decision to remove Tax-Free Shopping based on flawed figures

Yesterday, the Office of Budget Responsibility (OBR) published its Economic and Fiscal Outlook, containing a review of the figures used by the Treasury to inform the decision to remove the VAT Retail Export Scheme, which will prevent international shoppers from claiming refunds on goods bought in the UK from 1 January 2021. 
25th Nov 2020
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Walpole Comment  Office of Budget Responsibility confirms Treasury’s decision to remove Tax-Free Shopping based on flawed figures

The independent body confirmed that scrapping the scheme will save the Exchequer an average of £360 a year over the next five years, rather than the £500 that the Treasury has claimed. The OBR also stated that the Government’s costings are based on a “highly uncertain estimate” of how international visitors will react to the tax-free shopping incentive ending, and that “there will also be costs as the UK become less attractive for affected tourists relative to alternative EU destinations such as Paris or Milan”.

It should be noted that the scope of OBR focus is purely on assessing the costs of implementing Government policy and, because of this, the report does not assess the full, projected impact that termination of the scheme will have on the retail, hospitality, cultural, manufacturing and supply chain sectors, the resulting loss of jobs, and a reduction in investment by brands into the UK. Industry stakeholders, including Walpole and its members, have supplied the Treasury with evidence showing the full impacts.

Despite the OBR’s warning, Wednesday’s Spending Review confirms the Government’s intention to continue with the plan to remove the scheme.

Helen Brocklebank, Walpole's Chief Executive, said: “Walpole and many other industry stakeholders have provided evidence to the Treasury showing that visitors to the UK are highly sensitive to price rises and today the independent Office of Budget Responsibility has found the Government’s costings to be based on ‘highly uncertain estimates of how international visitors will react [to the scheme ending]’.”

She continued: “I urge the Chancellor to look at this decision again. Tax-free shopping is an important draw for affluent, non-EU visitors, accounting for between 30 and 60% of revenues in luxury stores in the UK. Indeed, £124m of tax-free shopping is spent in the cities that are crucial to the levelling up agenda – Liverpool, Manchester, Leeds and Birmingham. In Edinburgh alone, tax-free sales are £92m. The impacts of abolishing the scheme will be felt particularly deeply in these regions and around 40,000 jobs will be lost with a significant number from luxury manufacturing companies. Ending the scheme will be the wrong thing to do at the worst possible time.”

For more information, please contact Charlotte Keesing and Tania Pearson.