Tax-free Shopping for International Visitors

Geoffrey Clifton-Brown Excerpts

Thursday 7th September 2023 Westminster Hall

[Sir Geoffrey Clifton-Brown (The Cotswolds) (Con)]

I beg to move,

That this House has considered tax-free shopping for international visitors.

I thank you, Dr Huq, and Mr Speaker very much for granting me this opportunity to bring before the House the important subject of tax-free shopping—both VAT reclaim and duty-free shopping—for international visitors to this country. I also thank my hon. Friend the Minister, to whom I am grateful for turning up on this hot afternoon when I am sure she would much rather be doing something else. I am delighted to have the support of colleagues from throughout the country on this campaign. Of course, this issue affects not only London—it affects London greatly—but cities and tourist hubs across the UK, shopping destinations, cultural venues and the major regional airports.

This is an important debate on an issue I have campaigned on for the past few years following the Government’s decision to end tax-free shopping for international visitors when we left the EU. We are now the only major European country that does not have tax-free shopping, and the British economy is missing out as a result. In fact, the United Nations World Tourism Organisation barometer shows that Britain’s post-pandemic recovery in visitor numbers is the worst of all major European countries.

It is important at the start of the debate to respond to the idea that such a scheme would not benefit the British people. A study by Oxford Economics showed that restoring tax-free shopping would directly create a staggering 78,000 new jobs up and down the UK, possibly add as much as £4.1 billion to UK GDP, and result in—we believe—a net positive £350 million each year for His Majesty’s Treasury. In my speech, I will go into more detail and examine what the data suggests on the opportunities for economic growth from reintroducing tax-free shopping and VAT reclaim for foreign visitors.

Before we review the figures, I make it clear that my sole ask today of my hon. Friend, which I have to say would be almost cost-free, is for the Treasury to commission an independent assessment through the Office for Budget Responsibility or a respected audit firm—so that the Treasury believes it when it gets the results—of the full economic effect of tax-free shopping on the UK figures and all the figures that are available.

I believe the Government’s current position is based on inaccurate and incomplete Treasury figures that say that the cost of tax-free shopping would be £2 billion a year in refunded VAT. To highlight briefly how inaccurate those figures are, that calculation was reached by overestimating VAT refunds to UK shoppers by £600 million and excluding any tax revenue from increased spending by extra tourists. I therefore urge the Government to reconsider their objections to tax-free shopping which, as I say, I believe are based on inaccurate figures. We need an independent review to consider the topic so that we do not miss out on what could be a hugely positive and almost instantaneous win for the UK economy.

On 31 December 2020, the UK ended its tax-free shopping schemes for non-EU visitors and did not extend the schemes to EU visitors after the UK left the EU. The Government’s reasoning for that decision was the estimated cost of extending tax-free shopping to EU residents. Incidentally, all EU countries refund VAT on goods purchased by non-EU visitors—those visitors get the VAT refunded on purchases on the high streets and at duty-free shops in airports. Critically, Britain is therefore now 20% more expensive for shopping than any EU destination.

As we know, the entire economy was badly hit by the covid-19 pandemic and the wide shutdown of society during lockdown. Some of our hardest-hit industries were the tourism, culture and leisure, and hospitality sectors, which, owing to the very nature of their businesses, were unable to adapt easily to the hard lockdown rules, the impact of international restrictions, and reduced travel and tourism.

Now, thankfully, the pandemic is over. We have seen tourists return to the UK to enjoy the cultural sites in London, travel to our other great cities across our great country, and visit our picturesque towns and villages—including tens of thousands of visitors, I am glad to say, to my constituency of the Cotswolds. Sadly, however, our tourist industry recovery has not been as strong as that of some of our European neighbours.

All the real trading data from 2022, as international travel resumed, consistently undermines the Treasury’s forecast, which is that tax-free shopping would have little impact on visitor numbers and spending. The actual data on visitor numbers from 2022 and early 2023 show that ending tax-free shopping has had a significant negative impact on the behaviour of international travellers. Many choose to visit the UK, but unfortunately the really high spenders travel to Europe, because it is 20% cheaper to do their luxury goods shopping there.

For example, in 2022, spending by US visitors to the UK was back to pre-2019 pandemic levels, but in France, Spain and Italy it was double. In quarter 1 of 2023, US visitor spending was still just at 2019 levels in the UK, but in France and Spain it was around three times as much as 2019. Unfortunately, the differential is widening. Similarly, spending by Gulf Co-operation Council visitors to the UK in 2022 was around 65% of 2019 levels, whereas in Italy and Spain it was one and a half times the 2019 levels and in France it was double.

Brexit was an opportunity to create change in our economy that truly benefits the UK—creating new opportunities for growth for our innovative and internationally renowned retail, tourism and hospitality sectors. Instead, the EU is enjoying a Brexit bonus at Britain’s expense. Unfortunately, we have a double whammy: British shoppers joining other international visitors to shop tax-free in the EU, not in the UK, but not the same level of increased spending here as in other European countries. British shoppers now spend £1 billion on shopping tax-free in the EU, not here. If tax-free shopping was reinstated, Britain would be the only major European economy where 447 million EU residents could shop tax-free, which would create a huge new tourist market. Britain is missing out on a £1 billion Brexit bonus—a real opportunity for Brexit growth.

HMT did not forecast that that many visitors would be diverted completely from visiting the UK in favour of EU destinations. At the Government’s request, many businesses submitted actual evidence to HMT, in confidence, on the impact of ending tax-free shopping. The submissions show without a doubt that British businesses have suffered hundreds of millions of pounds in lost sales since 2022, and they see it getting worse, as more and more international travellers realise that they cannot shop tax-free in Britain.

In June 2023, the business improvement district for London’s west end, the New West End Company, which my hon. Friend the Member for Cities of London and Westminster (Nickie Aiken) knows well, surveyed its member businesses. More than half—54%—said that they were reviewing their long-term capital investment programmes to take account of the fall in the relative performance of their west end stores compared with their stores in continental Europe. More than one fifth—22%—are considering closing their London stores and relocating to mainland Europe. That is an example of how the UK is losing out.

HM Treasury forecasts that allowing 415 million EU residents to shop tax-free in Britain would generate only 50,000 additional trips annually—0.2% of the 24 million EU visitors in 2019. By the same logic, 66 million British residents now being able to shop tax-free in the EU would generate only an additional 9,000 trips. That is simply not credible. The reality is that in 2022 around 48,000 British people claimed VAT refunds in the EU, worth more than half a billion pounds. In 2023, that figure has more than doubled. We estimate that more than 1 million British residents will spend more than £1 billion on tax-free shopping in the EU, but not in the UK. That is one more proof that the Treasury has out-of-date forecasts.

On 3 August, along with my right hon. Friend the Member for Ashford (Damian Green), I co-signed a letter to the Chancellor highlighting the most recent forecasting report from leading economics consultancy Cebr, the Centre for Economics and Business Research. Its figures were built on an earlier study by Oxford Economics. The two reports were staggering. Cebr forecast additional visitor numbers of between 1.6 million and 1.7 million into this country if the measures were reinstalled, and increased spending of £1.7 billion to £2.8 billion. They each forecast that the GDP of the UK could increase by between £4.1 billion and £9.1 billion annually.

I note that the Treasury forecast is just an extra 50,000 visitors. The slight difference between the data of the Oxford Economics and Cebr forecasts is due to timing, with the former’s report released in October 2022 and the latter’s published in July 2023. However, we now have real consumer behaviour and spending data. By contrast with the up-to-date findings from Cebr, the Treasury’s own figures, on which the Government are making their decisions, come from 2020 estimates. I say to the Minister that the data is quite out of date and so low that it considerably reduces the estimate for visitor numbers and spend.

The Minister recently wrote to me saying that the Government were concerned that the findings of the Oxford Economics study did not match those of the OBR, particularly on the expected number of visitors as a result of introducing tax-free shopping. As I just said, the Oxford Economics forecast is an extra 1.6 million visitors, whereas the OBR forecast is 50,000. However, the Oxford Economics forecasts are being proved right by the real data from businesses that is now coming in, and the OBR figure is being proved significantly wrong.

All the data coming in clearly shows that the reason why the Treasury does not recognise the figure from Oxford Economics is not because the Oxford Economics forecast is wrong but because the OBR forecast is out of date. The Government are understandably acting on figures from the Treasury that they deem to be reliable. To assess the figures and bring some finality to the debate, I wrote to the OBR in May asking whether it could examine the costings and benefits related to tax-free shopping, both for VAT reclaim and duty-free shopping. Unfortunately, I am yet to receive a full response.

Chinese travellers are the biggest spenders of all, and in the last year Chinese visitors spent $258 billion—almost twice as much as visitors from the USA, who are the second biggest spenders at $135 billion—and they have the biggest potential for growth in the UK. Shopping is their No. 1 priority. Ending tax-free shopping in Britain is closing the door on the most important market for the international visitor economy. From 2009 to 2019, I was heavily involved in growing the number of Chinese visitors to the UK from 130,000 to 800,000, which is almost as many as France has. It was largely due to that increase in high-spending Chinese visitors that overall international spending pre-pandemic increased by 60%, from £17.6 billion to £26.4 billion.

The figures are significant. In 2019, some 800,000 Chinese visitors made up 5% of the 16 million non-EU visitors to the UK, but accounted for a staggering 32% of all tax-free shopping in the UK, spending around £1 billion. Of course, the Chinese were not travelling in 2022 because they were still locked down, but a survey of Chinese who had previously shopped in Europe showed that Britain had dropped from the second favourite European destination in 2019, just below France, to the least popular of all major European countries. In 2022, 75% visited France but only a tiny 42% visited the UK.

The Minister has quite rightly been asking for real evidence on the ground; I will give it to her now. Evidence from Heathrow airport shows that Chinese visitor numbers in July 2023 were at 88% of their 2019 levels, but spending in the shops at Heathrow was at just 33%. The Chinese are coming to the UK, but they are not spending money without the option of VAT reclaim.

There is a common perception that tax-free shopping affects only Oxford Street, Bond Street and the west end; however, this issue affects the whole United Kingdom. That is why the campaign has such wide and growing support, not just from colleagues throughout the country in this House but from major airports, hoteliers, cultural institutions and companies. The amounts spent outside London are significant for local economies—for example, Edinburgh, Manchester, Liverpool, Glasgow and Leeds together accounted for £225 million of tax-free sales in 2019.

The direct impact of all this is on retail sales, but there is also a wider impact on hospitality, culture, leisure and manufacturing. Here is another real example: in its annual report, the Dorchester hotel group reported that its Paris hotel was overperforming and its London one was underperforming as a direct result of the end of tax-free shopping. The Royal Opera House, Shakespeare’s Globe, west end theatres and Rank casinos have all publicly criticised the ending of tax-free shopping.

International travellers buy more goods from brands in the countries they are visiting, so British brands such as Mulberry, Burberry and Church’s shoes suffer the most. Mulberry has already had to close its flagship Bond Street store, which it blames solely on the end of tax-free shopping. Just imagine that: Mulberry, after all those years on Bond Street, is having to close. That has an impact on its London stores but also on the manufacturing plants and jobs throughout the UK that depend on the shops that are closing. Burberry manufactures in the north-east, Mulberry manufactures in the south-west and Church’s shoes manufactures in the east midlands, so support from across the country has been submitted in this campaign, demonstrating the real impact of the removal of tax-free shopping.

Just a few case studies include National Museums Scotland’s shop, Essential Edinburgh, Edinburgh Tourism Action Group, Birmingham Chamber of Commerce, Marketing Manchester, North West Business Leadership Team and businesses including Johnstons of Elgin, Church & Co, Boodles and Samsonite. The estimated loss of revenue and jobs will affect regional airports as well as manufacturing in factories in Blyth, Yorkshire and Somerset and high-value shopping areas such as Edinburgh, Dundee, London, Manchester and Leeds.

My hon. Friend the Financial Secretary kindly responded to my letter to the Chancellor yesterday to say that the Government are accepting evidence—I welcome that openness and thank her for that—to inform their policymaking on this issue and ensure that the Treasury has the latest data on the impact of the removal of the VAT retail export scheme. I hope that she and other colleagues will find that this debate adds to the compelling case for tax-free shopping for international visitors.

With all the real-world data emerging by the day showing that HMT’s forecasts are out of data, we urgently need the independent assessment that I referred to earlier on the full impact of tax-free shopping on the UK economy and its tax revenues. I say this to my hon. Friend the Minister: if an independent assessment shows that the full tax impact is either neutral or net positive, the Government must move quickly to restore tax-free shopping before more damage is done to the UK economy. If such a study proves that the Treasury’s figures of £2 billion costs are correct, I will happily accept that and go away and not be a nuisance to her.

[Nickie Aiken (Cities of London and Westminster) (Con)]

International visitors pay VAT when they stay in hotels, eat in restaurants, drink in bars and go to the theatre, so the independent review must look not just at retail but at the possible VAT revenue that the Treasury would receive if there were more international visitors coming here to shop.

[Sir Geoffrey Clifton-Brown]

My hon. Friend makes a really good point. This is what the Treasury figures do not cover at the moment. It is not just the VAT reclaimed; it is the VAT paid on all the other items, such as meals in hotels. And it is not just VAT: it is corporation tax, air passenger duty and a range of other duties that will be brought into the Treasury. That is where the figure of £350 million—our estimate—comes from, so my hon. Friend makes a really important point.

You will be glad to know I am coming to a conclusion, Dr Huq. The Treasury’s figures are based on the wrong methodology that does not consider in full the major upside for the country. I make an urgent plea today to the Financial Secretary. It is time that the OBR or another audit firm did a proper investigation into all the figures, as my hon. Friend the Member for Cities of London and Westminster said, instead of sticking to the figures that were produced for it in 2020. If it proves that the Treasury figures are correct, so be it. But if, as so many experts and businesses believe, there is considerable economic gain from introducing tax-free shopping, it would be an utter tragedy not to do so. Let us consider the real opportunity for growth and invigorate our economy by introducing tax-free shopping for tourists who come to this country.

--- Later in debate ---

[Mr Tanmanjeet Singh Dhesi (Slough) (Lab)]

It is a pleasure to serve under your chairship, Dr Huq.

I begin by congratulating the hon. Member for The Cotswolds (Sir Geoffrey Clifton-Brown) on securing this debate on tax-free shopping for international visitors. On behalf of His Majesty’s official Opposition and as a shadow Treasury Minister, I am absolutely thrilled to respond to the debate. I do so for the very first time in my new role as shadow Exchequer Secretary to the Treasury, so no doubt hon. Members will be very kind to me today, Dr Huq.

As hon. Members, including the hon. Member for Cities of London and Westminster (Nickie Aiken), eloquently made clear, the publication of official independent statistics on this issue commissioned by the Government is long overdue. Manifestly, businesses across our country—although there is a special need for those concentrated close to our airports and in visitor hotspots—need a supportive and stable Government able to provide certainty for the future. Stability and certainty are crucial to enable businesses to plan, invest and grow, but when it comes to tax-free shopping—the arrangement whereby products that are bought here but not consumed here are ultimately VAT-free—the uncomfortable truth for the Government is that Ministers changed course on this policy twice in the space of two months last autumn.

The Prime Minister, when he was the Chancellor, ended VAT-free shopping for tourists in 2021. The right hon. Member for Spelthorne (Kwasi Kwarteng), who became Chancellor, promised in September 2022 to reinstate it, as part of his disastrous mini-Budget. Weeks later, as the musical chairs to become Chancellor continued, the right hon. Member for South West Surrey (Jeremy Hunt) came in as Chancellor and performed another U-turn: tax-free shopping was again off the table. No sooner had one Conservative Chancellor marched businesses all the way to the top of the hill than the next one marched them all the way back down again. The country will not forget the worry and pain that began nearly one year ago with a Tory mini-Budget that crashed our economy, led to interest rates rising, and caused lasting damage for households and businesses. The reversal of the disastrous mini-Budget was necessary, of course, but businesses affected by the U-turn have been left understandably frustrated by changes and decisions made in haste.

We in the Opposition have been listening carefully to the concerns of those calling for VAT-free shopping to be reinstated, but at a time when the nation is having to navigate its way through multiple Tory Government-induced crises, we 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. Nevertheless, although we are not calling for VAT-free shopping to be reinstated, we firmly believe that retail and hospitality businesses, particularly those concentrated on our high streets, need support from the Government.

That is why, as my right hon. Friend the Member for Leeds West (Rachel Reeves), the shadow Chancellor, has set out, Labour is committed to reviving Britain’s high streets by replacing the current system of business rates with a new and reformed system that is fit for the modern day. Businesses on our high street provide essential services to people across the country and make a significant contribution to the Exchequer. They are not just places to buy things we need, but an important part of where we live, work and go about our daily lives. Their success is a key part of our mission to secure for the UK the highest sustained economic growth in the G7.

[Sir Geoffrey Clifton-Brown]

I thank the shadow Exchequer Secretary for giving way. I did not realise he had just been promoted, so I congratulate him on his new post. For understandable reasons, he is not committing to restore tourist tax-free shopping, but would he support my plea to the Minister that we should have a proper independent examination of all the figures to prove whether it would be a tax benefit, neutral or negative for this country, so that we can make informed decisions?

[Mr Dhesi]

As I mentioned earlier, it is imperative that those official, independent and highly regarded statistics commissioned by the Government are there for all to see, for the sake of transparency. However, we feel that at a time when we have the highest recorded waiting lists for the NHS, the biggest tax burden and drop in disposable income since the second world war, and many other crises besides, this cannot be a priority for what I hope will be the incoming Labour Government—touch wood.

We will support businesses, create jobs and increase productivity across every part of our country. A Labour Government will keep listening to and working with businesses as we set about making the tax system fairer and providing the stability and certainty that businesses so desperately need.

--- Later in debate ---

[Sir Geoffrey Clifton-Brown]

I anticipated that my hon. Friend would raise that—in fact, I nearly put it in my speech to stop her doing so. The proportion of people who want to reclaim the tax and have goods delivered—let us think of, say, a Chinese person visiting this country—is minute compared with the proportion who shop in this country and then physically reclaim the VAT and go home. So while that scheme is available, it is very little used.

[Victoria Atkins]

In fairness, it may be that people do not know that it is available. I do not know whether shops or brands advertise it to their customers. If a consumer is buying a larger item, they may think it much more convenient to have it sent home. The scheme is available should shoppers wish to make the savings described in the debate.

I acknowledge this has not been the case today, but some people call the current situation a “tourist tax”. Again, that is not correct, because the change in the law that happened a couple of years ago means that we simply expect overseas tourists to pay the same amount of tax as British people do when making a purchase, especially when so many countries—including some of the alternative shopping destinations that can be mentioned—do impose a genuine tourist tax on their visitors. So please let us not refer to it in that way, because that would not be correct.

My hon. Friend the Member for The Cotswolds understandably referred to a 20% saving from such VAT refunds, but that assumes that shoppers receive all the VAT back. In reality, we know that the companies processing refunds, who are sometimes the retailers themselves, charge significant administrative fees for the service. Indeed, one third of VAT RES users surveyed by HMRC were charged more than 50% of their refund in fees, and the average was 36%, so the savings to the consumer may be far less than the 20% rate of VAT.

To try to set in context the environment in which I am considering this request—alongside many others—since we voted to leave the European Union in 2016, the Treasury has received some £50 billion-worth of helpful suggestions and requests for products or items that should be zero-rated or have VAT relief applied to them. Cases are made in different debates on different subject matters where we are asked to make VAT relief decisions. Of course, VAT remains our third most productive tax in the UK, and it helps to support many of the public services that we all care so deeply about. Those are serious considerations that we must take into account for any request for VAT relief that we receive.

I completely understand the intentions behind my hon. Friend’s work—indeed, I commend him on it—and I share his wish to ensure that the UK remains an attractive place to visit and that support for our retail sector and high streets is strengthened. Both intentions and aspirations are shared across the Government. Therefore, if I may, I will take a couple of moments to help the House understand what we have done to achieve exactly that.

Through VisitBritain and the GREAT campaign, we have invested significantly in marketing the UK both domestically and internationally to stimulate demand and support recovery. According to updated forecasts from VisitBritain, there are due to be 37.5 million visits to the UK this year, which is some 92% of the level seen in 2019 before the pandemic, and inbound visitor spending is forecast to be £30.9 billion, which is up 9%. Those updates follow the stronger recovery we are seeing, with spending by American visitors up 42% to a record £6 billion last year alone. Sadly, international visitor numbers are still below 2019 levels for all G7 members and large European countries in 2022 and 2023, but of course that comes against the backdrop of the UK economy doing much better than was forecast over the last year or so, as we saw really encouraging growth figures more generally for the economy last week. Rather than ours being the weakest post-pandemic recovery in terms of visitor numbers, the post-pandemic recovery in the UK has been stronger than in countries, such as Germany and Japan, that continued to offer VAT RES. Post-pandemic recovery in the UK has also been stronger than in the United States and Canada in both 2022 and 2023.

We want to make sure that the tourist experience in the UK is as great as it can possibly be. One of the ways in which we have tried to reduce the bureaucracy and the barriers for tourists coming into the UK is by creating an exemption from visa requirements through our new electronic travel authorisation scheme to boost international tourism numbers, with visitors from the Gulf Co-operation Council states and Jordan being the first to benefit. We have also worked with industry to set up the tourism industry working group on international competitiveness and demand, which has been established to recommend practical policy options to support tourism recovery.

--- Later in debate ---

[Victoria Atkins]

I hope to ingeniously incorporate VAT RES into my response to my hon. Friend. She is absolutely right that, although the advocates of the scheme place a great deal of emphasis on it as a tax lever to encourage tourists back to the United Kingdom, in reality tourists come to the UK to look at our beautiful architecture, visit theatres, visit wonderful historic locations, and—dare I say it—visit the Lincolnshire wolds and other places of great beauty around the country.

[Sir Geoffrey Clifton-Brown]

The Cotswolds.

[Victoria Atkins]

Including, of course, the Cotswolds. We must look not just at how to encourage more tourism through tax levers, but at the actual offering to tourists when they are here in Oxford Street, Burford or Bourton-on-the-Water, so we ensure that those places are as attractive and inviting as they can possibly be. I hope that the House is therefore in no doubt that the Government are determined to do everything they can to make the UK an attractive place to visit, both to support tourism and hospitality and to support our retailers.

As I have said, the VAT retail export scheme is still available to those non-UK visitors who purchase items in store or online and have them delivered to their overseas address. However, as we heard from my hon. Friend the Member for The Cotswolds, a significant Treasury analysis in 2022 estimated that introducing worldwide VAT RES shopping would come at a fiscal cost of around £2 billion each year. I know that my hon. Friends and others have questioned that analysis and methodology, and I will try to address some of those queries and concerns. We also know that industry-commissioned analyses have reached different conclusions, including the Oxford Economics report, which I have gone through carefully with officials. I will try to break some of those down.

The Treasury costings include estimates for an increase in the numbers, but it does not agree that as many extra visitors would come to the UK as a result of changing the tax measure, as suggested by the external research that we have seen so far, particularly the Oxford Economics analysis. For example, the Government estimate that 50,000 to 80,000 more people would come to the UK if we introduced such a scheme. My hon. Friend thinks the figure would be higher, and I think the Oxford Economics report suggested something in the region of 1.6 million, but the 50,000 to 80,000 figure has been endorsed by the OBR, which is the independent body that scrutinises Treasury calculations and assumptions. Indeed, my hon. Friend has asked the OBR to review the policy.

The figure of 50,000 to 80,000 extra visitors is just 4% of that suggested by Oxford Economics, which suggested that 1.6 million more people would come every year. To put that in context, the total number of tourists we welcomed in 2019 was just over 40 million. We therefore find the external assumption to be much stronger than the Treasury was able to find evidence for.

Let me try to reassure observers about the Treasury’s methodology. I know that the concern is raised that it does not properly account for an increase in visitors. I reiterate that the fiscal cost of £2 billion was made up not just of that factor, but of many other components. For example, the cost includes the VAT loss on purchases from EU and non-EU visitors. The cost also takes account of changes in behaviour. It includes an adjustment for the changes in the number of visitors, the changing spending patterns of visitors and the impact of digitalising a VAT RES scheme.

It is also said that the costings overestimate VAT refunds to EU shoppers, but, in fact, EU visitor spending is adjusted to account for the fact that these visitors tend to spend less than non-EU visitors. Government analysis assumed that EU visitors would spend at about 60% of non-EU levels, but, for comparison, Oxford Economics used 63%, so the Government’s assumption was in fact more generous.

Even taking into account those effects, the Government still estimate that the measure would cost in the region of £2 billion each year, and the methodology for calculating that £2 billion cost is consistent with the methodology signed off and certified by the OBR in 2020.

However, as my hon. Friend the Member for Cities of London and Westminster emphasised, tourism must be seen in the round. We should be confident that the UK’s attraction as a destination extends well beyond our shopping, even though we have pretty brilliant shops in our great city and around the country. Evidence from VisitBritain shows that the key motivators for tourists visiting the UK are our rich history and heritage and our vibrant towns and cities, not just shopping.

HMRC has surveyed VAT RES users and found that VAT RES did not make the list of reasons for visiting Great Britain. Furthermore, two thirds of those surveyed said that they would have purchased the items regardless of the scheme, while 28% would have purchased fewer items, meaning that 95% of tourists would still shop even without the scheme.

To emphasise that point, I have asked officials for figures on how much tourists spend when they are visiting. I am told that the average spend per visit was £696 in 2019 and £848 in 2022, which is an increase of 8% in real terms. That tends to indicate that international spending habits in the UK are not directly informed by whether VAT RES is in place.

I accept, of course, that individuals will make different decisions on VAT, and that some customers are more price-sensitive than others. However, taken in the round, those are the figures with which I have been provided. We have looked at the Treasury’s analysis and the OBR’s analysis, which suggest that the increase in tourist spending is marginal, but the policy would still come with a significant price tag.

My hon. Friend the Member for The Cotswolds advocates for a review. As with all taxes, the Government keep VAT policy under constant review. Further to that, we have committed to understanding the latest evidence on VAT shopping, or on the impact of the VAT RES scheme on shopping in British high streets. That is why the Chancellor has already invited evidence submissions from industry to inform our policy making.

I would like to take this opportunity to thank the retail and hospitality industry for providing so much data already for my officials. I am obviously keen for them to carry on with their businesses—earning money, making profits, employing people and contributing to our growing economy. I am grateful to them for taking the trouble and time to help us with this. We expect further evidence in the coming weeks, which we look forward to receiving and will consider very carefully.

Although I am obliged to stress that the independent OBR certified the Government’s costings for the removal of the VAT RES scheme and that we have set out our methodology for how the £2 billion estimate was calculated, I have heard my hon. Friend’s call for an independent review and I will reflect carefully on his eloquent submissions.

We are committed to ensuring that the UK remains an attractive place to visit and committed to supporting our retail sector. None the less, the Chancellor is clear that being responsible with the public finances is a key priority. In that regard, VAT RES would subsidise a large amount of tourist spending that already occurs, arguably, without a tax relief in place. But we very much want to listen to industry and support long-term sustainable growth, so we will continue, as I say, to receive evidence and keep the policy under review. I am extremely grateful to my hon. Friend for setting this debate in motion.

[Sir Geoffrey Clifton-Brown]

I am grateful to you, Dr Huq, for giving me the opportunity to briefly reply to this debate; it is very important. I thank the Minister for setting out in detail for the first time how the Treasury’s methodology works. I will come back to that in a minute. Before she did so, she set out in detail the reliefs that the Treasury has given to businesses in rates and VAT, as well as high street grants and business grants during the dreadful pandemic, all of which were very much appreciated by businesses and no doubt kept a lot of them going. Some of those reliefs still persist today, for which I am sure businesses are grateful. But that is no substitute for businesses getting profits into their bottom line, and one way of doing that is to get more tourists into this country spending more money. That is why I think the issue is so important.

The Minister has fully set out the case for why she believes the Treasury’s methodology relating to the £2 billion cost to the Treasury is correct. I suggest that I take that away and ask industry to go through, in depth, all the things that she has mentioned and come up with a statement on whether they agree on each individual point, and if not, why they disagree and what the effect would be. If, at the end of the day, we still disagree with the Treasury’s methodology, may I come back to her with a comprehensive statement and discuss it further? I would still say that we badly need an independent study.

I have not brought my brief today, but I recall that when the OBR addressed the Treasury Committee, it said that it placed low reliance—I think that is what it said—on the visitor number forecasts.

[Victoria Atkins]

I was anticipating this point and, indeed, quizzed my officials about it. I think the phrase my hon. Friend refers to is a high uncertainty rating. I am told that that rating given by the OBR is not unusual in the context of Government policy. That is because it is driven by behavioural uncertainty, which is difficult to predict with limited data and the additional complexity linked to EU exit. It was not, I am told, because of concerns with the methodology employed. As I say, we are very keen to hear further evidence and views in due course.

[Sir Geoffrey Clifton-Brown]

I am grateful to my hon. Friend for being so well informed to be able to answer that individual point. However, I suspect, again, that industry and the OBR will disagree with her over that matter.

I thank the Minister very much, and you, Dr Huq, for so ably chairing this debate. It has been thoroughly useful. The fact that we have had relatively few speakers has enabled us to examine the whole issue in detail; I think industry will be very grateful for that. I suspect that it will come back with all sorts of replies that will rebut what my hon. Friend has said. Let us see and then I will go back to her and I am sure the debate will continue. Nevertheless, I thank her very much for what she has done this afternoon.

Question put and agreed to.

Resolved,

That this House has considered tax-free shopping for international visitors.