Minister rows back on plans to reinstate tax-free shopping for tourists

A government minister has played down speculation that the tax-free shopping scheme for overseas tourists could be reinstated in next week’s Budget.

Nigel Huddleston, the minister responsible for the tax system, said in correspondence seen by The Times that it was “not possible to introduce the same system as before, given that it would now need to be open to visitors from the EU as well as the rest of the world.”

The Treasury withdrew from the VAT retail export scheme in January 2021 while prime minister Rishi Sunak was chancellor.

This means 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.

Hoteliers including Sir Rocco Forte have warned that tourists are increasingly "bypassing" the UK to visit other destinations offering the tax rebate.

A review of the issue is being undertaken by the Office for Budget Responsibility after pressure from retail, hospitality and travel bosses, including Heathrow Airport chief executive Thomas Woldbye.

Chancellor Jeremy Hunt said this month that he would consider a reversal of the tax.

But in a letter sent to one of the leaders of the tourist tax campaign, Huddleston added that “a new VAT-free shopping scheme could subsidise a large amount of tourist spending that already occurs without a tax relief in place, without bringing any direct benefits to the British public.”

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

Hunt will set out his tax and spending plans in the spring Budget on 6 March.

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