Retailers and the hospitality industry have welcomed the planned return of VAT-free shopping for international tourists, saying it would help to boost sales.
The government said it would consult on introducing a new tax-free shopping scheme for Great Britain and would modernise the one in place in Northern Ireland.
The scheme will enable tourists to get a refund on VAT on goods bought on the high street, at airports and other departure points and exported from the UK in their personal baggage.
The move, which will cost almost £1.3bn in 2024-25, when it is likely to be brought in – according to government documents published alongside Kwasi Kwarteng’s mini-budget on Friday – unwinds the scrapping of the long-term VAT-free scheme in January 2021 by the former chancellor Rishi Sunak after Brexit.
The government said a consultation would “gather views on the approach and design of the scheme” before it was delivered as soon as possible.
Retailers, especially in tourist hot spots such as central London, have long called for the return of the scheme, saying its loss had led to tourists opting to spend more elsewhere.
Helen Dickinson, the chief executive of the British Retail Consortium, which represents most major retailers, said: “We welcome the reintroduction of tax-free shopping for tourists, which will boost sales and bring the UK back in line with other European nations.”
But she added that the government had not taken any measures to tackle the burden of business rates, the property-based tax which retailers say hobbles them from competing with online specialists such as Amazon.
“Retailers are facing immense cost pressures, not just from energy bills, but also a weak pound, rising commodity prices, high transport costs, a tight labour market and the cumulative burden of government-imposed costs,” Dickinson said.
“Yet what was missing from today’s announcement was any mention of business rates, which are set to jump by 10% next April, inflicting another £800m in unaffordable tax rises on already squeezed retailers. It is inevitable that such additional taxes will ultimately be passed through to families in the form of higher prices.”
Kate Nicholls, the chief executive of UKHospitality, the trade body that represents restaurants, bars and hotels, added: “While tax-free shopping for overseas customers is a welcome step to attract overseas tourists, a far more immediately impactful step would be to reduce VAT for our domestic customers.
“Our VAT rate is the highest among modern economies, so if we want a globally competitive market, we need lower VAT and an equitable alternative to business rates.”