A new report by the Centre for Economics and Business Research (CEBR) shows what it says are the “clear economic benefits associated with a VAT refund scheme”.

The report concludes that the scrapping of the UK tax-free shopping scheme in 2021 following Brexit is having the effect of deterring two million tourists a year, resulting in £10.7 billion in annual lost GDP.

In September last year, then UK Chancellor Kwasi Kwarteng confirmed plans to reintroduce tax-free shopping for overseas visitors, as part of his doomed “mini budget”.

But this was quickly scrapped by his replacement Jeremy Hunt, who said “not proceeding with this scheme is worth around £2 billion a year”.

The Digital, Culture, Media and Sport (DCMS) Committee subsequently published its own report calling the move “short-sighted and incredibly damaging”.

Scrapping of planned tax-free shopping for overseas visitors “short-sighted and incredibly damaging”

The report by the CEBR follows the launch of a new ‘Scrap the Tourist Tax campaign’ which has been backed by 350 business leaders including the heads of BA, Marks & Spencer, Harvey Nichols, Primark, Jigsaw, Kurt Geiger, Heathrow, Gatwick, Burberry, and Mulberry.

The CEBR said that “if the traditional scheme offering VAT-free shopping for tourists was restored, there would be a clear overall benefit to the public finances”, with the exchequer gaining £1.56 in other taxes for every £1 refunded in sales tax to foreign tourists.

An open letter to the Chancellor points to “growing evidence that tourists are choosing to travel and spend in cities like Paris, Milan and Madrid rather than in the UK” as a result of the absence of tax-free shopping, and adds that the Treasury’s calculations on the cost of tax-free shopping “take no account of the fact that tourists spend in hotels, restaurants, theatres, museums, tourist attractions and on public transport”.

“The chorus of criticism from business leaders of the tourist tax has become deafening and a responsible Government can ignore it no longer, said Sir Rocco Forte, chairman of Rocco Forte Hotels, which helped to commission the new research.

“The Treasury has asked for evidence that scrapping tax-free shopping has damaged the economy and deterred high-spending tourists. Not only have 350 leaders of some of Britain’s leading businesses and tourist attractions now signed a letter warning that valuable tourist revenue is being lost, we also have economic analysis showing very clearly that restoring tax-free shopping would boost the public finances and the wider economy.

“Far from costing £2 billion a year as the Treasury has claimed, the exchequer would actually benefit by £2.3 billion when wider tourist spending is taken into account. At a time when we are desperate for economic growth, a U-turn on this policy is urgently required.

“We now know that reintroducing a VAT rebate scheme would boost visitor numbers to the UK by two million a year – the UK simply can’t afford to go on driving these tourists into the arms of our rivals.

“As long as we leave the tourist tax in place, Paris, Milan and Berlin can’t believe their luck.”