Tourist Spending: VAT
Debate between Baroness Penn and Baroness Doocey(11 months, 1 week ago)
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Baroness Doocey
To ask His Majesty’s Government what assessment they have made of the impact of VAT on tourist spending.
The Parliamentary Secretary, HM Treasury (Baroness Penn) (Con)
The Government engaged with varied stakeholders and produced analysis on the cost of VAT-free shopping before withdrawing the previous scheme. Government analysis done in 2022 that took increased tourist spending into account found that introducing worldwide VAT-free shopping would come at a fiscal cost of £2 billion each year. Furthermore, the OBR’s assessment of the previous VAT-free shopping scheme showed that its withdrawal would have a limited behavioural effect on decisions to visit or spend in the UK.
Baroness Doocey (LD)
I find it so difficult to understand why the Government keep saying that the reintroduction of VAT-free shopping for tourists would be a problem for the country and would cost much more than it would bring in. All the mounting evidence suggests that the opposite is the case. The tourists who come to the UK at the moment are spending about the same as they did in 2019, but US tourists who are going to France, Spain and Italy are spending at the rate of three times what they did in 2019. Does the Minister really believe that this disparity is nothing to do with the fact that we abolished duty-free spending for tourists? I ask the Minister to at least re-look at the figures as a matter of urgency, because our retailers are really struggling, and they need and deserve a level playing field.
Baroness Penn (Con)
My Lords, I reassure the noble Baroness that the Government continue to monitor the evidence around VAT shopping, as we do keep all taxes under review. As to the process the Government went through in making their decision, I reassure the noble Baroness that we engaged with a wide variety of stakeholders on the removal of the VAT scheme, including Border Force, retailers, VAT refund providers, refund agents, airport operators and shoppers. That research took place in parallel with a consultation which produced a range of views. So the Government did make every effort to look at the evidence available when reaching this decision, including their analysis of the costs of the policy.
VAT Retail Export Scheme
Debate between Baroness Penn and Baroness Doocey
Baroness Penn (Con)
Well, my Lords, I am sure that we will keep the impact of this decision under review. With regard to Shop & Ship, it is a much more effective way to deliver on the international norm when the consumption tax is paid in the country in which the good is consumed. The VAT RES is open to much more potential for fraudulent use compared to Shop & Ship.
Baroness Doocey (LD)
My Lords, this issue was last considered in 2013, when tourism was benefiting from the prestige of the 2012 Olympics. Even at that boom time, HMRC strongly backed tax-free shopping, because it encouraged large numbers of high-spending international visitors to come to the UK. We need tourists now more than we have ever needed them before, and I have not met one person within the tourism industry who agrees with this; they totally disagree with what the Government are saying. So why are the Government insisting on doing this against the advice of the industry? Because the industry believes—and it does know what it is talking about—that this will lead to very significant job cuts.
Baroness Penn (Con)
My Lords, the change in the position since 2013 is that the Government can no longer apply the scheme only to non-EU visitors. The end of the transition period and WTO rules mean that we are faced with the decision to extend it to all visitors or get rid of the scheme altogether. Given the costs associated with the scheme and our understanding of the primary drivers of people’s reasons for visiting the UK, we have taken the decision that we have.