40,000 jobs are under threat if duty-free shopping is scrapped, retail organisation warns Rishi Sunak

Scrapping duty-free shopping could cost 40,000 jobs and leave taxpayers billions of pounds out of pocket, Chancellor Rishi Sunak was warned last night.

The Association of International Retail says 25,000 retail staff and 15,000 factory workers who make luxury goods for top British brands face redundancy after the decision to axe the tax-free perk at the end of the year.

The organisation, which helps UK retailers to sell more goods abroad, also says that the £1.4 billion saved by the move will be dwarfed by a £6 billion loss caused when some tourists, including 'super-spenders' from China and the Middle East, head to France and Italy instead of the UK to take advantage of the EU's tax-free shopping laws.

It also says the Chancellor risks 'wasting' the £250 million he is spending to keep those 40,000 workers on furlough, only for them to lose their jobs in March.

Scrapping duty-free shopping could cost 40,000 jobs and leave taxpayers billions of pounds out of pocket, Chancellor Rishi Sunak was warned last night

The Association of International Retail says 25,000 retail staff and 15,000 factory workers who make luxury goods for top British brands face redundancy after the decision to axe the tax-free perk at the end of the year. (Above, shoppers in Harrods)

Last night, Paul Barnes, chief executive of AIR, said: 'I would urge the Chancellor to look again at the numbers. It is not just the high street that he is putting at risk, but also people's livelihoods.'

Tourists are estimated to spend £22 billion on hotels, restaurants and cultural attractions each year but some economists fear the axing of duty-free shopping will hit cities such as Birmingham, Edinburgh, Liverpool, London, Manchester and Oxford. Luxury brands including Burberry and Mulberry say their businesses could be badly hit.

In a letter to Mr Sunak last week, 40 Tory MPs asked him to reverse his decision, which they claimed would 'set back the Government's levelling-up agenda to help the and damage our ambitions for a global Britain'.

Tourism bosses are also concerned. Adrian Ellis, general manager of The Lowry Hotel in Salford and chairman of Manchester Hoteliers Association, said: 'The fears are that international business could be reduced by as much as 50 per cent.'

Alex Nicholson-Evans, commercial director of the Birmingham Museums Trust, said: 'Removing tax-free shopping will disadvantage the UK, making us a less appealing destination at a critical time for our recovery.'

Meanwhile, Robert Ettinger, the owner and chairman of luxury leather goods brand Ettinger, said: 'Our factory in Birmingham employs highly skilled craftspeople who rely on London's retailers for their work.

'Any reduction in business could be detrimental to the future and growth of their jobs and of the business.'

A Treasury spokesman said: 'About 92 per cent of visitors to the UK don't use the VAT Retail Export Scheme and extending it to the EU could increase total costs up to £1.4 billion a year.

'Tax-free shopping is still available in stores when goods are posted to overseas addresses.'