London is often seen as being two cities: one of enormous wealth, the other of significant poverty. As Chancellor Jeremy Hunt ponders his final tweaks to his autumn statement, to be made on Wednesday, contrasting pitches from the capital seem to illustrate that characterisation well.
Firstly, business leaders have been vigorously making the case for reinstating VAT-free shopping for overseas visitors, commanding plenty of media attention and even staging their own street protest – appropriately, on Mayfair’s Savile Row – complete with “Scrap the tourist tax” banners.
Since the VAT refund scheme was withdrawn in 2021 as part of post-Brexit tax changes, businesses in the capital’s high-end shopping districts say that some 10 per cent of 2019 spending by international tourists, £1.5 billion-worth of sales, has gone off to Paris, Rome and other shopping hotspots in the European Union, leaving London’s tourist trade recovery the worst in Europe.
“The UK is now at a stark competitive disadvantage due to the fact we charge overseas shoppers 20 per cent more than our international neighbours for the same goods,” says John Dickie, chief executive of lobby group BusinessLDN.
According to a recent analysis, restoring VAT-free shopping could attract up to two million extra tourists, boost UK GDP by up to £10 billion and deliver £3.6 billion of extra revenue for the Treasury, easily outweighing the lost VAT income.
The second pitch to the Chancellor, backed by London’s local authorities along with housing, homelessness and poverty campaigners, is for a hike in the government-set local housing allowance (LHA) rate which determines housing benefit entitlement.
This has been frozen since 2020, and is now so out of kilter with soaring private rents that in London just 2.3 per cent of dwellings for private rent are now affordable to those dependent on the benefit to keep a roof over their heads.
The city is already England’s homelessness capital, with around one in 50 Londoners overall and one in 23 children living in council-funded temporary accommodation – and without a shift on LHA a further 60,000 private renters are likely to become homeless by 2030, says the cross-party group London Councils.
It wants LHA raised to cover at least 30 per cent of market rents in order to make renting more affordable and also save the public purse more than £100 million a year by reducing pressure on homelessness services and through associated lower NHS and social care costs.
“London’s homelessness pressures are already enormous,” says Darren Rodwell, London Councils executive member for housing. “The situation is increasingly unmanageable and requires urgent government action.”
At first sight, the two asks of the Chancellor couldn’t be more different: one the one hand, a tax handout to the wealthy for their luxury indulgences, on the other, help for London’s poorest struggling to survive the cost-of-living crisis. However, there’s actually cross-party support for both.
What are the chances of Hunt answering London’s calls? On VAT, Rishi Sunak doesn’t sound interested, having said reverting to the old system would mainly benefit a “very small area in central London”. But that view, as well as betraying a continuing anti-London sentiment in national government, underestimates the wider impacts on businesses, say its proponents.
A survey earlier this year for the New West End Company business improvement district suggested that 54 per cent of its members were reviewing investment plans as revenue from their London fell by comparison with their continental counterparts. One in five were actually considering relocating. High-end accessory business Mulberry has already closed its Bond Street flagship store, saying sales had slumped since VAT-free shopping ended.
It’s not just about shopping. London’s “hotels, restaurants, shops, bars, cafés and theatres fit together neatly as an impressive tourist offer. Tax-free shopping has become the missing piece of that jigsaw,” Conservative Cities of London & Westminster MP Nickie Aitken said last month. Regional tourist attractions, airports and supply chains are also affected
There are some wider points too: tourism supports one in seven jobs in London and generates 12 per cent of the city’s’ economic output, much of that concentrated in the centre. Sunak’s “very small area in central London” is an important component of London’s “global city” economy, which significantly benefits the UK as a whole. One analysis suggests restoring the concession could create and safeguard more than 200,000 jobs.
Hence Sadiq Khan’s support for the capital’s luxury stores: “We could be doing far more to increase overseas visitors coming to the UK, which would in turn support those sectors which are reliant on tourism, including retail, hospitality, and culture. This would remove a major competitive disadvantage for London and the UK.”
What about the call for an LHA uplift? Khan and Labour councils have been long-standing lobbyists for the change and have recently been joined by not just Conservative-run councils but also, according to news reports, by Michael Gove and work and pensions secretary Mel Stride.
This is recognition, perhaps, that broad action on housing is needed in a city where average rents have risen by almost a third since the pandemic, and where high house prices and continuing supply shortages are seeing more and more Londoners living in the private rented sector – one in seven of them reliant on housing benefit – or forced out of the capital altogether.
As with VAT and tourism, the housing crisis is hampering recruitment, undermining the attractiveness of the city and dragging not only on the London economy but the UK economy too.
London is an economic success story, but it still needs support across the board if it is to continue to thrive, including for those struggling for somewhere affordable to live, and the shops selling luxury goods alike. Perhaps those two big asks aren’t as incompatible as they might seem.
The latest word seems to be that while there may be movement from the government on LHA rates, a tax change seen by Number 10 as a subsidy to the West End is less likely.
Either way, the lobbying shows London’s different interests working together, even though many would argue there is more to do to make opportunity in the city and the distribution of the proceeds of its growth more equitable.
Above all, perhaps, shouldn’t we be moving away from a system where one of the world’s major global cities has to hold out a begging bowl rather than determining more of its own destiny?
X/Twitter: Charles Wright and On London. If you value On London’s coverage of the UK capital, become a supporter or a paying subscriber to editor and publisher Dave Hill’s personal Substack for just £5 a month or £50 a year. In return you will get a big weekly London newsletter and offers of free tickets to London events.