VAT Retail Export Scheme

Lord Vaizey of Didcot Excerpts

Tuesday 20th October 2020 Lords Chamber

Asked by

[Lord Vaizey of Didcot]

To ask Her Majesty's Government what assessment they have made of the financial impact on (1) the retail, and (2) the tourism sector of the decision to withdraw the VAT Retail Export Scheme from 1 January 2021.

[Baroness Penn (Con)]

My Lords, the Government have announced that the VAT retail export scheme will not be extended to EU visitors and will be withdrawn for all non-EU visitors following the end of the transition period. The final costing, including behavioural assumptions and an assessment of the fiscal effects, will be subject to scrutiny by the independent Office for Budget Responsibility and will be set out at the next forecast.

[Lord Vaizey of Didcot (Con)]

My Lords, I wonder whether the Minister has seen the research by the Centre for Economics and Business Research which says that this tax reform puts 128,000 jobs under threat and could see a fall of £6 billion in retail sales and cost the Treasury £3.5 billion, whereas if the scheme is kept and extended to EU visitors it could create 20,000 jobs and generate £1 billion of retail sales. Given the Chancellor’s excellent work in supporting retail and manufacturing during the pandemic, I wonder whether the Treasury would look at this reform again.

[Baroness Penn (Con)]

I am glad that my noble friend has recognised the support that the Government have put in for retail during the pandemic. Unfortunately, the Government disagree with the analysis in that report, and with two key assumptions in particular regarding the impact on non-EU visitor numbers. The first is that those numbers will reduce by 1.17 million. When the total number of users of the VAT RES is 1.2 million, that assumes that all users will no longer come to the UK. The second assumption, which is even more stretching, is that the number of non-EU visitors will reduce by 4.96 million—four times as many people as currently use the scheme who, it is assumed, will stop coming to the UK in response to the scheme’s withdrawal.