Hoteliers warn tourists are ‘bypassing’ UK due to lack of tax-free shopping

Hoteliers have urged the government to reinstate the offer of tax-free shopping to overseas visitors out of growing concerns that tourists are “bypassing” the UK.

The Treasury withdrew from the VAT retail export scheme in January 2021 following Brexit.

Tourists from non-EU countries are no longer eligible for a refund on sales tax, which they would have paid over the course of their stay.

As it stands, the UK is the only country in Europe not to offer tax-free shopping for visitors from outside the EU.

Henrik Muehle, managing director of Flemings Mayfair hotel in London, told The Caterer: “Overseas visitors have to pay an extra 20% on VAT and I think it’s outrageous. It’s a terrible policy by a government who is constantly on all channels talking about growth.”

Muehle, who is German, says that Berlin, Hamburg, and Munich are all “booming with high-end spending visitors from all around the world” who would “normally come to the UK”.

“They are bypassing London. Many of our high-end visitors go to destinations like Italy directly. If I look at my STR reports between 2019 and 2023, our occupancy is down by 8%,” he said.

In December, VisitBritain forecast that spending by international visitors in the UK would increase from £28.4b in 2019 to £29.5b in 2023. However, it predicted the UK would welcome 35.1m visitors in 2023, just 86% of the 40.9m recorded in 2019.

Sir Rocco Forte (pictured below), chairman of Rocco Forte Hotels, which has a portfolio of 14 properties across Europe, said tourists are “increasingly voting with their feet”, which has “actively harmed” the UK economy.

“I am seeing this in my own hotel group, where business in Europe has rebounded more strongly post-Covid than it has in the UK. Paris, Berlin and Milan are rubbing their hands with glee at our stupidity,” Forte added.

Forte, whose hotel group operates the Balmoral in Edinburgh and Brown’s in London (pictured above), said the impact of tax-free shopping was felt beyond the retail market: “High-spending tourists don’t just buy luxury goods; they contribute to the whole of the economy, spending in hotels like mine, theatres, restaurants, cafes and on taxis and public transport.”

Kwasi Kwarteng announced plans to reintroduce tax-free shopping during his short-lived tenure as chancellor last year, but the Treasury later scrapped the plans and said it would cost the UK £2b a year.

Forte said the calculation was “entirely short-sighted” and has organised an open letter to chancellor Jeremy Hunt calling for the reversal of the ‘tourist tax’, which has been signed by over 120 business leaders across the hospitality, retail, luxury and travel sectors.

Adrian Ellis, general manager of the Lowry in Manchester, said the tax-free shopping scheme would benefit other cities, not just London, commenting: “The hoteliers in Manchester are very much in favour of tax-free shopping being available once again to visitors to the UK. It will help international business because in Manchester especially we’ve seen international business diminish a bit since the pandemic.”

Kate Nicholls, chief executive of UKHospitality, said: “Any change to VAT, whether that be the overall rate or more targeted changes to shopping for visitors to the UK, must be supported by an impact assessment that takes account of the potential benefit to or impact on hospitality and tourism businesses.

“For example, the Department for Culture, Media and Sport committee labelled the original decision to remove tax-free shopping as ‘short-sighted’ and ‘incredibly damaging’, with the original analysis of the impact being inadequate and not considering the effect losing these visitors would have on the wider tourism economy.”

The trade body said it continued to lobby the government to reduce the headline 20% VAT rate for hospitality to boost visitor numbers to the UK.