(6 days, 10 hours ago)
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Baroness Meyer
To ask His Majesty’s Government what assessment they have made of the impact of tax-free shopping on the economy.
The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)
My Lords, the VAT retail export scheme known as tax-free shopping was withdrawn in 2021. The announcement of that withdrawal was made by Kemi Badenoch. The OBR estimated that the 2021 withdrawal, which was from non-EU citizens, would save the taxpayer £540 million. However, a policy that was compliant with World Trade Organization rules would apply to EU citizens as well and be much more expensive. It therefore seems extraordinary that Mrs Badenoch has confirmed that she would reintroduce this policy but has not told us how it would be funded. Should any Member of the party opposite know the answer to that question, I would be most interested.
Baroness Meyer (Con)
I thank the Minister for his Answer. I should note that it was actually Rishi Sunak who scrapped the scheme. The OBR estimate of £500 million a year is not agreed by many of the organisations and businesses that would benefit from it. Will the Minister review the evidence, since many do not agree with the numbers, and consider a digital retail export scheme modelled on Germany and Italy, in which private operators refund and thus reduce administration costs to the Government? That was one reason why the scheme was scrapped, because the Government estimated that it was too expensive bureaucratically. Before the noble Lord, Lord Watts, says anything—yes, it was the Conservative Party that scrapped the scheme, but, on the other hand, I think to myself, “Isn’t this an irresistible opportunity for the Labour Government to reverse something to create jobs and growth in this country?”
Lord Pitt-Watson (Lab)
I thank the noble Baroness, Lady Meyer. In fact, the Conservative Party did reintroduce this scheme in the Liz Truss mini-Budget. It was withdrawn six weeks later by Jeremy Hunt when he became Chancellor and, when he withdrew it, he suggested that that would save the taxpayer £2 billion per year. Again, I ask if anyone on the Benches opposite can tell me where that £2 billion would come from? As to the evidence that this would be tax raising, there are some reports—I accept that point from the noble Baroness—but the Oxford Economics report was, of course, commissioned by the Association of International Retail and the Centre for Economics and Business research by Global Blue, which is a company that provides VAT refund services. If we are going to have evidence-based policy, I think the numbers that I have been citing to your Lordships are rather better than ones that might be in danger of being policy-based evidence.
The Earl of Clancarty (CB)
My Lords, it is worth pointing out that the VAT retail export scheme is the norm in the EU, and it was withdrawn here in the wake of Brexit. That loss has particularly affected the creative industries, including craft and fashion, as the British Fashion Council points out. To take the wider view, will the creative industries be under particular discussion at the EU-UK summit on 20 November?
Lord Pitt-Watson (Lab)
I am absolutely sure they will. But, to be clear about the evidence here, if we look at the difference in spend by foreign visitors from 2019 to 2024 in the major EU countries and in the UK, we see no evidence that the withdrawal of this scheme has been negative. Britain is actually a little above the average. It is not statistically significant, because it is comparing only five countries, but I really do not think that there is evidence that the withdrawal of this scheme has done great damage, and the scheme comes at some cost.
Baroness Kramer (LD)
My Lords, the Minister is someone who understands calculation. My understanding is that the Treasury and the OBR have not calculated the lost revenue from the higher visitor activity in the UK that would have resulted had this scheme not been withdrawn, have not calculated the potential revenue from the spend of those additional visitors to the Treasury, and that that number, according to the industry, is roughly £2 billion a year. Will he go back and try to understand why the OBR and Treasury do not include those calculations when they assert that they are saving money by scrapping the scheme, because it looks to everybody that, at the worst, it would be a wash, and, if the industry is even vaguely correct, the Treasury is actually losing money in this way?
Lord Pitt-Watson (Lab)
Let me reassure the noble Baroness that the £540 million figure that I gave, which is a Treasury figure, fully includes all the knock-on effects of the introduction of the tax-free shopping scheme for non-EU citizens. The £2 billion quote was from Jeremy Hunt after Liz Truss’s disastrous mini-Budget. I cannot tell noble Lords how that number was calculated, because in the Liz Trust Budget the OBR was not consulted.
Baroness Royall of Blaisdon (Lab)
My Lords, I hear what my noble friend says and certainly do not have any answers. I remind noble Lords of my registered interests. However, I know that many visitors from far away overseas who used to come and spend five or six days in this country, visit lots of wonderful attractions, do a lot of shopping and then go home now come here for three days, visit some attractions and then go to Paris, Milan and other places to do their shopping. Therefore, can my noble friend perhaps look again at this at some stage?
Lord Pitt-Watson (Lab)
I can come back on that. I think we all understand that visitors can still reclaim VAT on purchases; they just need to have them shipped directly. If they are shipped directly, they are then caught by customs in the country to which they are shipped. The statistics are the 2019 to 2024 statistics. UK tourism receipts recovered to 111% of their 2019 levels after adjusting for inflation. In France, they recovered to 107%, in Italy to 103% and in Germany to 83%. We were beaten only by Spain with 117%. The notion that loads of people who were coming here who are now not coming here is difficult to stand up on the evidence.
Lord Harlech (Con)
My Lords, I declare an interest in that my wife works for a British fashion house.
Lost sales equals lost jobs. One of the areas hit hardest in the rising NEETs situation is retail and hospitality. What are the Government doing to improve sales in these areas and get young people back into retail jobs?
Lord Pitt-Watson (Lab)
There are a number of things for the broader retail industry. In particular, I note the new deal on business rates support, with retail and hospitality saving nearly £1 billion a year, covering 750,000 properties. The Government continue to review the wider business rates system. However, if there is to be any change to that, we need to wait for the Budget.