The hotel business is booming in Italy. I should know – overseas bookings in my hotels there are close to an all-time high, especially from the United States.
With the pandemic over and worldwide attention focused on the forthcoming Coronation, that should be true for the UK.
But it is not. Demand from abroad for hotel rooms here is far less pressing than it should be. One of the reasons for that is glaringly obvious, and it is also easily fixed. But the Government is proving deaf to our pleas and blind to logic.
We don’t offer tax-free shopping any more. Visitors to our islands have to pay a swingeing 20 per cent extra in VAT for souvenirs and luxury items that they want to take home. It’s a punishing, unfair, short-sighted policy, an active deterrent to overseas shoppers.
There is clear and emerging evidence that this is costing the UK not only lost revenue in terms of sales going elsewhere, but billions in wider spending in our economy.
With the pandemic over and worldwide attention focused on the forthcoming Coronation, that should be true for the UK. But it is not
It’s no exaggeration to say the Chancellor Jeremy Hunt (pictured) is driving away business from our shores
The Government is proving deaf to our pleas and blind to logic, writes Sir Rocco Forte (pictured)
There’s no such problem in the European Union. As a result, tourists are keeping their wallets in their pockets when they visit Britain – if they come here at all. Italy, Germany, Spain and most of all France are reaping the benefit. It’s no exaggeration to say the Chancellor is driving away business from our shores. And at a time of high inflation and a cost of living crisis, that makes no sense.
Until January 1, 2021, tourists travelling to the UK from outside the EU, whether they were here for business or leisure, enjoyed a serious incentive to splash their cash. And since many of them were wealthy Americans, and others were visiting from the oil-rich Gulf states or from Africa, China and India, they had almost unlimited spending power.
The incentive was this: as long as they took their goods – watches, electronics, designer clothes and all manner of other purchases – home, they were exempt from paying VAT.
The system of tax-free sales was known as the Retail Export Scheme or VAT-RES. It came to an end as part of Brexit, but of course everyone expected the Government to maintain it for sound economic reasons – and could reinstate it at any time.
When he was at 11 Downing Street, Rishi Sunak refused to do that. During her brief premiership, Liz Truss announced the return of VAT-RES, but that respite was short lived. Incoming Chancellor Jeremy Hunt quickly reversed her administration’s decision.
The impact of reimposing VAT on sales to tourists was not immediately apparent, because in early 2021 Britain was still ricocheting from one lockdown to the next. But the global travel industry is now well on track for a full recovery and the effects of this tax on tourism are brutally clear.
Italy, Germany, Spain and most of all France are reaping the benefit of tax-free shopping. Pictured: Galleria Vittorio Emanuele II in central Milan
This is not mere anecdotal evidence. According to a study by Oxford Economics we could attract more than 1.6million extra visitors to the UK annually, by 2025, simply by bringing back tax-free shopping.
And as this would mean the reintroduction of VAT-free zones at airports, Eurostar stations and ports, the move would be popular with all holidaymakers, Britons included. As we prepare for one of the spectacles of the century, the Coronation of our new King, I feel deeply frustrated that our shops won’t be able to take full advantage of the influx of visitors.
Drawn here for the regal pomp and circumstance, thousands of international fans of our Royal Family are surely willing and ready to be enticed into the fabulous shopping quarters of London, Edinburgh and other major tourist destinations.
The publicity generated by this spectacular occasion should draw international visitors in great numbers not just for the weekend itself, but for months and years to come. Instead, many of them will head straight across the Channel to the streets of Rome and Paris, where their money will go further – a huge loss, not only to the luxury stores but to the hotels, restaurants, tourist attractions, taxis and transport companies, theatres … in short, to everyone who relies on tourism for trade.
This is an appalling waste of a glorious, once-in-an-era opportunity. When I started in the hotel business, more than half a century ago, many travellers from further afield were something of a captive market. Mostly they flew in and they stayed here for some weeks before returning home.
But in the past couple of decades, patterns of tourism have changed dramatically. Visitors are much more likely to take short-haul flights within Europe. Budget airline seats are often so cheap it costs less to fly to the continent for a weekend of VAT-free shopping, than it does to stay in the UK and suffer the 20 per cent taxes.
The Government’s out-of-date business models and the reigning Treasury orthodoxy fail to understand this. Their financial projections take no account of human nature. They expect the behaviour of tourists to be unchanged, static in spite of the competition from other countries.
As we prepare for one of the spectacles of the century, the Coronation of our new King, I feel deeply frustrated that our shops won’t be able to take full advantage of the influx of visitors. (file image)
It is completely unrealistic.
Short-sighted Treasury advisers see a short-term benefit in imposing VAT on sales to tourists. Higher taxes mean more state revenue, they say. But if people don’t spend money here, tax revenues will fall overall and the Treasury’s forecasts will not materialise.
And of course, these calculations take no account of the benefit of tourist revenues across the economy, so we are shooting ourselves in the foot.
In the real world, raising taxes to reduce the budget deficit will stifle growth. And if we stifle growth for long, the economy will crash.
We are already seeing that in the tourist industry. Like a canary in a coal mine, this sector of the economy is highly sensitive to poisonous changes in the atmosphere. And charging an extra 20 per cent to overseas shoppers is toxic to the whole of UK plc.
Prime Minister Sunak needs to recognise what is happening.
Just at a time when tourism should be gaining from the weakness in sterling and helping the economy to recover, adding impetus to the return to growth, it is being hindered by this pernicious VAT rule.
Charging an extra 20 per cent to overseas shoppers is toxic to the whole of UK plc. Prime Minister Sunak needs to recognise what is happening
Tourists are also deterred by inflation in the UK, which is still above 10 per cent, markedly worse than in Europe. One reason for that is our shocking energy costs, which in turn are driven higher by the Government’s irrational targets for ‘net zero’ carbon emissions.
These are complex problems, and they have complex effects, far wider than their direct impact on hotels and tourist attractions.
Stagnant growth hurts people on low wages and on benefits most of all. It is socially irresponsible, because it is bad for business, from the humblest bed-and-breakfasts to the promenade arcades, to the families running cafes on the seafront to the coach drivers and publicans, art galleries and concert venues, and the innumerable little charities that rely on generous visitors to stay afloat.
If the PM is hoping that a summer tourism boom will restore Britain’s fortunes, he needs to take swift action. Soon, Chinese visitors will return to the West in greater numbers than ever, but they won’t want to do their shopping in here if our prices are not competitive. They will go to Europe.
Here’s the good news, though: thanks to digital, cashless systems, it’s easier than ever for businesses to apply VAT refunds instantly and painlessly.
The Prime Minister and the Chancellor have to listen. For once they have a chance to do something that’s good for everyone.
Source : https://www.dailymail.co.uk/columnists/article-12005315/SIR-ROCCO-FORTE-short-sighted-Tourist-Tax-driving-away-business-shores.html?ns_mchannel=rss&ito=1490&ns_campaign=1490&rand=1270