Badenoch pledges to restore tax-free shopping she defended scrapping in 2021

Kemi Badenoch has pledged that the next Conservative government would restore VAT refunds for overseas visitors, reversing a post-Brexit tax change that took effect in January 2021, when she was a Treasury minister. Labour accused her of a "spectacular U-turn", in a statement from a party spokesperson.

The pledge, announced on Sunday, would bring back the VAT Retail Export Scheme, which allowed eligible visitors to reclaim VAT on goods bought in Britain and taken home. The scheme, along with tax-free airside shopping, was withdrawn from 1 January 2021 under the last Conservative government, when Rishi Sunak was chancellor and Badenoch was Exchequer Secretary to the Treasury.

The Conservatives said the restored scheme would initially cover visitors from outside the EU and could be extended to EU visitors subject to evidence, with rollout complete by the end of the next parliament. The party said the cost would be partly offset by a crackdown on so-called health tourism, including more consistent charging of patients ineligible for free NHS treatment. It did not publish an estimate of the cost of restoration or of the revenue the NHS measures would raise.

"Britain should be the place where the whole world comes to shop," Badenoch said in a statement issued with the announcement.

"We have iconic retailers, inventive designers and brilliant manufacturers, but they are being let down by a tax policy that is chasing their customers away. Holidaymakers are choosing rival cities in other countries for the simple reason that it saves them money.

"British retailers are closing down shops with the knock-on effects damaging small manufacturers, suppliers and jobs across the UK. I want them to know I'm on their side and Conservatives will sort out taxes so companies can create jobs and grow our economy."

Badenoch defended the withdrawal of the scheme in the Commons on 26 January 2021, answering a question from the SNP MP Gavin Newlands at Treasury oral questions. She told MPs the Office for Budget Responsibility had assessed the fiscal effect of the change, "factoring in a higher than usual elasticity to account for spending on luxury goods", and said: "Its estimate is that this will result in a significant Exchequer saving of about £400 million per year."

The Labour spokesperson said: "Kemi Badenoch used to say tax-free shopping was a costly giveaway and now she's trying to sell it as an economic miracle." The spokesperson added: "If they really think it's such a great idea, they should explain why they scrapped it in the first place and how they'd pay for bringing it back." Badenoch's recorded remarks in 2021 referred to an Exchequer saving rather than a giveaway.

A Treasury spokesperson defended the current position, saying: "The UK is one of the most-visited countries in the world with international tourism driving billions into our economy. We are supporting the continued growth of this industry and the Government is working to meet our ambition to welcome 50 million international visitors a year to the UK by 2030." The spokesperson said visitors could still claim VAT relief where purchases were shipped directly to their home country as exports.

The economic case cited by the Conservatives rests on modelling by the Centre for Economics and Business Research, commissioned by the Heart of London Business Alliance, which represents West End businesses and campaigns for restoration. The study, published this month, put the effect of a fully utilised scheme at up to 2.35 million additional visitors a year, £4.1bn in extra tourism spending, £11.5bn in additional output, about 153,000 jobs and a £2.6bn net gain to the Exchequer. The figures are presented as an upper-bound scenario rather than a forecast.

Retail and hospitality figures backing the pledge, including Brian Duffy of Watches of Switzerland and Sir Rocco Forte, said in a joint statement that restoring tax-free shopping "will allow us to win back those who may have taken their custom elsewhere in recent years".