Tax-Free Shopping: Economic Impact

Baroness Meyer Excerpts

Monday 26th October 2026 Lords Chamber

Asked by

[Baroness Meyer]

To ask His Majesty’s Government what assessment they have made of the impact of tax-free shopping on the economy.

[The Parliamentary Secretary, HM Treasury (Lord Pitt-Watson) (Lab)]

My Lords, the VAT retail export scheme known as tax-free shopping was withdrawn in 2021. The announcement of that withdrawal was made by Kemi Badenoch. The OBR estimated that the 2021 withdrawal, which was from non-EU citizens, would save the taxpayer £540 million. However, a policy that was compliant with World Trade Organization rules would apply to EU citizens as well and be much more expensive. It therefore seems extraordinary that Mrs Badenoch has confirmed that she would reintroduce this policy but has not told us how it would be funded. Should any Member of the party opposite know the answer to that question, I would be most interested.

[Baroness Meyer (Con)]

I thank the Minister for his Answer. I should note that it was actually Rishi Sunak who scrapped the scheme. The OBR estimate of £500 million a year is not agreed by many of the organisations and businesses that would benefit from it. Will the Minister review the evidence, since many do not agree with the numbers, and consider a digital retail export scheme modelled on Germany and Italy, in which private operators refund and thus reduce administration costs to the Government? That was one reason why the scheme was scrapped, because the Government estimated that it was too expensive bureaucratically. Before the noble Lord, Lord Watts, says anything—yes, it was the Conservative Party that scrapped the scheme, but, on the other hand, I think to myself, “Isn’t this an irresistible opportunity for the Labour Government to reverse something to create jobs and growth in this country?”

[Lord Pitt-Watson (Lab)]

I thank the noble Baroness, Lady Meyer. In fact, the Conservative Party did reintroduce this scheme in the Liz Truss mini-Budget. It was withdrawn six weeks later by Jeremy Hunt when he became Chancellor and, when he withdrew it, he suggested that that would save the taxpayer £2 billion per year. Again, I ask if anyone on the Benches opposite can tell me where that £2 billion would come from? As to the evidence that this would be tax raising, there are some reports—I accept that point from the noble Baroness—but the Oxford Economics report was, of course, commissioned by the Association of International Retail and the Centre for Economics and Business research by Global Blue, which is a company that provides VAT refund services. If we are going to have evidence-based policy, I think the numbers that I have been citing to your Lordships are rather better than ones that might be in danger of being policy-based evidence.