GCC tourists could be lured back to UK with return of tax-free shopping

The UK could be set to attract a huge increase in tourists from the GCC, a British MP has told The National, with dual changes to travel rules on the cards.

With the introduction of the new Electronic Travel Authorisation (ETA) system next week and the growing hope that tax-free shopping will be reintroduced in next month's budget, Britain will become “a much more attractive destination for GCC travellers,” Conservative MP Geoffrey Clifton-Brown said.

Mr Clifton-Brown has vociferously backed a campaign to get the so-called 'tourist tax' changed and tax-free shopping reintroduced because of the boost it would likely give to UK retailers.

With GCC travellers expected to visit more frequently due to the ETA, it could have significant impact, he believes.

The ETA is cheaper, faster and easier to apply for than the current Electronic Visa Waiver (EVW) and will be available for arrivals from February 22.

It is open to citizens of the UAE, Saudi Arabia, Oman, Qatar, Bahrain, Jordan and Kuwait and means that visitors from the Gulf will be able to make unlimited visits to the UK over two years.

“In 2019, travellers from GCC states spent around £2bn on tax-free shopping in Europe,” Mr Clifton-Brown told The National. “Around 66 per cent of this was spent in the UK.

“So this is a very important market for us. But in 2022, GCC shopping spending fell by 35 per cent in the UK compared with 2019 levels, while it grew by 108 per cent in France.”

'Creating a level playing field'

Tax-free shopping, whereby international tourists could claim back the VAT on their purchases in the UK, ended three years ago after then-chancellor Rishi Sunak brought a halt to the scheme.

But recently, the independent government spending watchdog, the Office for Budgetary Responsibility (OBR) said in a letter to Mr Clifford-Brown that it was reviewing its original calculations and would publish its finding alongside Chancellor Jeremy Hunt's budget next month.

That has led to a wave of optimism among retailers, restaurateurs and hoteliers that tax-free shopping will be reintroduced. Meanwhile, the British Chambers of Commerce, the Federation of Small Business as well as the chief executives of several luxury brands have become increasingly vocal in their push to get a tax-free scheme reinstated.

On Monday, Heathrow Airport joined the chorus saying that while exports were thriving, Britain has “shut the door on home grown growth, turning away international shoppers through the tourist tax and tarnishing the UK’s reputation as a competitive country to spend and do business with”.

Many experts contend that the decision to drop tax-free shopping for international tourists never really made fiscal sense for the UK and, in essence, did not take into account the spending habits of tourists making several stops across Europe.

“The key issue here is that this is not about a change to domestic tax rates,” Mr Clifford-Brown said.

“This is about creating a level playing field with our nearby competitor destinations in the international visitor market. All the evidence is showing that by becoming the only European country not to offer tax-free shopping to international visitors, those travellers, many of whom are on multi-country tours of Europe, are simply choosing not to shop in the UK.

“Instead, they divert much of that spending to France, Spain, and Italy. So the Treasury didn't get the VAT it expected and British shops are losing £1.5 billion of spending annually.”

Not a political priority

Nonetheless, governments of all hues are often reluctant to give up streams of income easily and while the Treasury will not comment on a possible decision to bring back tax-free shopping for international tourists in the run-up to next month's budget speech, last September MP Victoria Atkins, who was at the time financial secretary to the Treasury, told parliament that “VAT remains our third most productive tax in the UK”.

In the same parliamentary debate, the opposition Labour shadow minister for exports, Tanmanjeet Singh Dhesi, said his party has carefully considered this matter and “do not believe that reinstating tax-free shopping for international visitors should be a priority for the use of the billions of pounds of public money”.

The Treasury's straightforward analysis in 2022 claimed that reinstating the tax-free scheme would cost £2 billion by the 2025/26 fiscal year.

However, research by the Centre for Economics and Business Research (CEBR) painted a larger picture. It calculated that if tax-free shopping had still been available in 2022, the average tourist to the UK would have saved 4.2 per cent of their total spending which, in turn, would translate into a 5.4 per cent rise in visitor numbers, or an extra 1.7 million tourists.

As such, the CEBR theorised that the revenue generated by the spending from these additional tourists, plus the tax take from the extra UK jobs generated by them would outweigh the Treasury's estimated £2 billion cost of reinstating tax-free shopping.

The Office for National Statistics (ONS) said overseas residents made 10.9 million visits to the UK in the third quarter of last year, an increase of a million visits on the same period in 2022. The ONS also said that those visitors spent £10.1 billion during Q3 of 2023, £1 billion more than in the same period the year before.

However, analysis by the tax-free shopping company, Global Blue, shows that tourist spending in European countries like France, where tax-free shopping still exists, has recovered at a much faster rate following the Covid pandemic.

All eyes now turn to the budget speech on 6 March, and while many are hoping for a full reinstatement of the tax-free shopping system, some predict Mr Hunt may make some tweaks to rules, possibly along the same lines as Italy where visitors have to spend more than €70 before they can claim the VAT back.