Who needs the CBI when you have Dr Gerry Murphy of Burberry? The Irishman packed quite a punch when he accused Rishi Sunak at a business summit earlier this week of scoring a “spectacular own goal” by removing the VAT on foreign visitors shopping.
The Burberry chairman was polite in tone but his accusations were withering, accusing the PM’s of the “somewhat perverse” decision to end the tourist tax refunds which made the UK the “least attractive shopping destination in Europe”. What’s more, he says there is so much evidence to show that wealthy foreign visitors from the US, China and the Middle East are switching to Paris or Milan instead of London because of the tax.
Murphy put the blame directly onto Sunak who took the decision to scrap the incentive when he was Chancellor in 2021. The UK had seen by far the weakest recovery of all the major markets for Burberry, he said, adding that: “We are actively exporting business as a result of that policy to our continental competitors. So I would ask you in the spirit of making Britain a more competitive environment, in the spirit of fostering growth… to reconsider that position.”
It was dynamite to watch. And Murphy knows what he is talking about: he heads the £10 billion FTSE 100 listed company which is one of the UK’s most successful and biggest luxury groups and one of the world’s most sought-after brands.
Watching Sunak fend off Murphy’s accusations was painful. And embarrassing. The PM was lost for words, he squirmed and didn’t have an answer to give Murphy other than to defend the decision because of the need to raise taxes. It was a weasel worded get-out, made worse by the PM for saying he would look at “what’s happening on the ground.” Yet he knows what’s happening on the ground. For the PM, who we are told loves maths and spread-sheets, knows only too well that industry chiefs have been banging on about this 20% tourist tax ever since it was scrapped.
Industry chiefs have been lobbying the Treasury hard to make changes but so far to no effect. And it’s not going to change anytime soon: within hours of Murphy throwing his lobs, the Chancellor Jeremy Hunt repeated the mantra that while business taxes are too high, it would be too expensive to cut them now. His response was equally vapid: “I will look at all independent evidence about the impact. Of course, all things being equal, I want to attract tourists to the UK and I want them to spend their money in the UK rather than the other places so I completely understand the competitive issues that are raised.”
If that is the case, then why did Hunt go ahead with dropping the refund? Why didn’t he accept that it was one of the sensible suggestions contained within the famous autumn Budget presented by Kwasi Kwarteng during the short time Liz Truss was at No 10. They brought the rebate back, only to have it overturned by Hunt.
The figures are there for all to see, and they have not been hidden. Industry chiefs from all over the country have been warning about this unintended consequence ever since Sunak abandoned the rebate.
Yet as the Burberry boss argued, reinstating the refund would be a big win for businesses as more foreign shoppers would bring greater revenue flowing back into the UK’s hotels and restaurants, as well as the knock-on effect on all other services.
As others have suggested, removing the rebate is an own-goal and a self-inflicted wound. Research by Oxford Economics suggests that tax-free shopping would bring a much-needed £4.1 billion boost to GDP and support 78,000 jobs. And that’s not only London: the VAT exemption was important to other cities like Manchester and Edinburgh as well as out of town shopping centres such as Bicester.
The Treasury’s claim that it would cost £2 billion in lost taxes is disputed by the experts who estimate there would in fact be a net gain to the Exchequer of at least £350 million a year.
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In another study from Global Blue, the tax-free shopping data company, US spending on applicable goods in France and Spain was more than triple its 2019 level in the first three months of the year but only 1pc higher in Britain. And Douglas McWilliams, of the Centre for Economics and Business Research, estimates that Britain will lose one million tourists and £3 billion this year as a result of the changes. What’s more, he reckons this could turn out to be too cautious.
In an even more brilliant bit of lobbying, Murphy’s attack was perfectly coordinated with a letter to the Chancellor, organised by hotelier Sir Rocco Forte, which included 90 signatories from some of the UK’s biggest businesses urging the government, to reconsider the tax which they described as puzzling and ill-timed.
They are right: British business traditionally made £3.5billion in tax-free sales to tourists every year. This double-whammy from some of the country’s leading business leaders – including the bosses of British Airways, Mulberry, the Royal Opera House and Fortnum & Mason to name a few – was all the more embarrassing for Sunak because he was the host of the Business Connect event, one that was being held specifically to rebuild bridges with business leaders – and potential donors – at a time when Labour has been busy courting them to show they are a credible alternative. Sunak must have been disappointed: he had hoped the event would provide a healthy antidote to the Boris Johnson era of “f*** business.”
What made Murphy’s criticism – and Sir Rocco’s letter – all the more powerful was because their messages were so direct, coming from the heart – or at least the bottom line of their businesses. Whatever you might think about the luxury of owning a Burberry coat or staying in a Forte hotel – particularly now when so many consumers are weighing up the cost of butter – these are the businesses that create thousands of jobs and wealth for the UK and wealth for their shareholders, many of whom are British pensioners.
Ironically, this latest attack by Murphy and Forte was more powerful than anything the CBI, even in its heyday, could have come up with if it had been lobbying the government to remove the tax.
It also shows why the latest idea being floated about how the UK’s big four trade organisations – the Institute of Directors, Make UK, the British Chamber of Organisation and the Federation of Small Businesses -should be merged to create an alternative to the CBI, which is unlikely to recover from the sex scandals, is such a terrible idea.
Each of these organisations has a specific sector and audience which they represent, and each have quite separate needs which they need to present to the government of the day and so need to speak with different voices. Putting them together would be a disaster, and as far as one can tell, they also believe it’s a rotten idea.
The reverse is true: the more that businessmen like Murphy stand up and speak for their industry rather than hide behind lobbyists, the better the quality of debate and the diversity of opinion we will have.
Whether Sunak or Hunt choose to reconsider their short-sighted tourist tax and challenge the Treasury’s myopic groupthink thinking on the matter, is anybody’s guess. Don’t bet on it. But if they continue to ignore the needs of business, then they are the ones who will have more time on their hands to go shopping.
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