The UK economy could gain an extra £3.7 billion a year and create more than 73,000 new jobs if the government reinstated tax-free shopping for overseas visitors, ministers have been told.
A new paper from the Association of International Retail (AIR), an independent industry body, has urged the government to reverse the 2021 decision to scrap VAT rebates for tourists — a move widely criticised by business leaders as a “tourist tax”.
The submission, delivered to the Department for Culture, Media and Sport, argues that Brexit created a unique chance for Britain to offer tax-free shopping to both non-EU and EU visitors, unlocking a vast new market of 450 million potential shoppers.
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“With Britain no longer in the EU, we have the opportunity to become the best place in the world for shopping,” said Derrick Hardman, the chair of AIR.
“While the 26 EU countries offer VAT-free shopping to non-EU visitors, including those from the UK, Britain is now in the unique position of being the only major European country where this attraction could also be offered to all 450 million EU residents.”
He added: “This would give Britain an unchallengeable competitive advantage within Europe. In addition to levelling the playing field with our EU competitor destinations who all offer VAT refunds to non-EU visitors, Britain would have the unique opportunity to create a whole new, shopping-led EU tourism market.”
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The call comes just days after Joshua Schulman, Burberry’s chief executive, said the UK could reclaim its status as the world’s top shopping destination if the VAT rebate were reinstated.
Tax-free shopping for international visitors existed for decades but was abolished during the Brexit transition. Unlike its EU rivals, which still offer VAT rebates to tourists, the UK no longer does. This, businesses have argued, makes it less attractive to high-spending visitors.
AIR’s report, which feeds into the government’s visitor economy growth plan due this autumn, warns that international visitors are increasingly being drawn to rival destinations. In 2023, UK visitor numbers recovered to 96 per cent of pre-pandemic 2019 levels, while France and Spain surpassed pre-Covid numbers, it said. Tourist spending in the UK reached 92 per cent of 2019 levels, compared to 110 per cent in France and 106 per cent in Spain.
The paper estimates that EU visitors alone could generate £3.65 billion in additional spend annually if they had access to VAT-free shopping, which could also reverse the £1.5 billion that the UK is estimated to lose each year as non-EU tourists opt for Paris, Milan or Madrid instead.
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The policy change would particularly benefit regional economies, the association notes. About half of EU visitor spending in the UK occurs outside London, and many regional airports primarily serve European travellers. Using British Retail Consortium metrics, the report forecasts that £3.65 billion in retail spending would support over 73,000 new jobs across the UK.
It is claimed that British retailers are no longer such a draw for tourists
KEVIN COOMBS/REUTERS
Retailers and hospitality leaders have thrown their weight behind the proposal. Michael Wainwright, chairman of luxury jeweller Boodles, said: “A new tax-free shopping scheme would more than pay for itself thanks to the extra spending that would be stimulated across the economy, not just in retailers but in hotels, restaurants, tourist attractions, taxis and so on”.
Sir Rocco Forte, chairman of Rocco Forte Hotels, said: “Customers at our hotels used to come laden with parcels. Now they spend less time with us and go on to shop in Paris or Milan. This is a huge own goal which could be quickly rectified.”
AIR has proposed a modern, fully digitised refund scheme to simplify the process and maximise take-up.
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The Labour government appears unwilling to launch a new scheme. A Treasury spokesman recently said it had “no plans to introduce a new tax-free shopping scheme in Great Britain”, adding: “Visitors can continue to claim VAT relief where the items purchased are shipped directly to their home country as exports.”
A government spokesman said: “The UK is one of the most visited countries in the world and international tourism drives billions into our economy. We are supporting the continued growth of this industry and will be launching a National Visitor Economy Strategy this autumn to help meet our ambition to welcome 50 million international visitors a year to the UK by 2030.”