Home » Heathrow Airport: Tourist tax has ‘shut the door’ on UK economic growth

Heathrow Airport: Tourist tax has ‘shut the door’ on UK economic growth

  • Before 2021, foreign tourists could claim a VAT refund on items bought in the UK
  • Hundreds of Britain’s most prominent retailers want the ‘tourist tax’ scrapped

Britain has ‘shut the door on home-grown growth’ following its abolition of VAT-free shopping, Heathrow Airport has warned.

Europe’s busiest airport said the UK’s exports were flourishing but warned that the ‘tourist tax’ was driving away inbound travellers and harming the country’s business environment.

It has now allied with the British Chambers of Commerce (BCC) and the Federation of Small Businesses (FSB) to campaign for ‘an internationally competitive tax-free shopping incentive’ in the upcoming Spring Budget.

Staying away: Heathrow said the UK’s exports were flourishing but warned that the ‘tourist tax’ was driving away inbound travellers and harming the country’s business environment

Hundreds of Britain’s most prominent retailers, companies and other brands want the UK Government to reinstate tax-free shopping, which Rishi Sunak abolished three years ago when he was Chancellor of the Exchequer.

Before the start of 2021, foreign tourists could claim a VAT refund on items bought but not consumed in the UK.

HM Treasury claims that reintroducing the perk would cost the exchequer £1.3billion in the 2024/25 financial year, followed by £2billion the year afterwards.

But a Centre for Economics and Business Research study estimates the move would actually boost the economy by over £10billion per year, while Oxford Economics says it would directly support about 78,000 jobs.

About a week ago, fiscal watchdog the Office for Budget Responsibility announced it would begin a cost-benefit analysis of the tourist tax, generating hope among business leaders it could soon be abolished.

Heathrow said: ‘While exports are thriving, Britain has shut the door on home-grown growth, turning away international shoppers through the tourist tax and tarnishing the UK’s reputation as a competitive country to spend and do business with.’

The travel hub also revealed its latest monthly passenger statistics on Monday, showing that 6 million travelled through the airport in January, a 9.4 per cent rise from last year.

The figures were just shy of pre-pandemic volumes, with trading supported by the continued recovery in travel to and from the European Union, North America and Asia-Pacific regions.

Heathrow forecasts handling 81.4 million people in 2024, although it also predicts its turnover and earnings will decline due to the Civil Aviation Authority limiting the amount the airport can charge airlines for every passenger they carry.

Despite widespread economic uncertainty, the air travel industry anticipates a bumper year ahead, including a strong summer.

Victoria Scholar, head of investment at Interactive Investor, said: ‘While cost-of-living pressures continue to hurt consumers amid the backdrop of elevated prices and higher interest rates, it looks like individuals and families continue to prioritize travel over other luxuries where possible, even in the face of higher air fares.

‘February will be the next major test for Heathrow as a gauge of demand over the typically busy half-term period following the seasonal post-Christmas lull.’