The controversial ‘tourist tax’ could cost the UK economy £260 million over the festive holiday, analysis finds

• Sum could be conservative as it doesn’t include spending at tourism businesses

The controversial ‘tourist tax’ will cost UK shops as much as a quarter of a billion pounds in lost sales this Christmas, according to analysis yesterday.

The huge figure piles pressure on Chancellor Jeremy Hunt to scrap the measure in the Spring Budget.

The study by industry group UKinbound found the sum could be a conservative estimate as it does not include spending at hotels or other tourism-reliant businesses, such as taxi firms.

Historically, 17.2 per cent of retail spending by foreigners visiting Britain happens in November and December. When the study extrapolated this against the estimated £1.5billion in lost annual sales due to the levy, it found that shops will lose out on as much as £259million this festive season.

Last night critics said it was yet more proof that failure to restore VAT-free shopping for foreigners is damaging the economy, with tourists deserting Britain for other countries which still have the perk.

Mr Hunt chose not to restore it in last month’s Autumn Statement despite tourism and business chiefs saying it would give a huge boost to British firms. 

Yesterday Joss Croft, chief executive of UKinbound, led calls for it to be restored in the Budget on 6 March.

‘These projections lay bare the reality of the decision not to reintroduce VAT-free shopping for international visitors, with economies up and down the country potentially hit by as much as £259million as international visitors take their cash to other parts of Europe,’ he said.

‘As well as the loss of retail spend, the loss of spend is hitting our hotel, hospitality and attraction industries and is preventing the inbound tourism industry from playing its full role in growing the British economy.

‘With Christmas a key season, this unnecessary tax continues to affect international visitors’ holiday choices and continues to negatively impact businesses throughout the UK.

‘The UK has the opportunity to become the shopping capital of Europe and the Chancellor must act now and reintroduce VAT-free shopping for international visitors.’

Tory MP Henry Smith, chairman of the cross-party Future of Aviation group of MPs, said: ‘This is not only hitting our aviation, travel, and retail industries, but is damaging manufacturing and businesses.

‘It is high time that the Government accepted that VAT-free shopping must be reintroduced without any further delay.’

Before 2021, tourists from outside the European Union could claim back the value added tax charged on their shopping, effectively giving them a 20 per cent discount.

But Rishi Sunak scrapped this when he was Chancellor. As the tax-free scheme is still in place in the EU, tourists can save thousands on designer handbags and clothing if they buy them in Paris or Milan, with lower footfall having a wider hit on the UK economy.

Hundreds of MPs, peers and leading figures from across the retail, hospitality and tourism sectors have already backed the Daily Mail’s campaign to Scrap the Tourist Tax.

A study suggests restoring the perk could make the UK £10billion a year better off and support 200,000 jobs.