Tuesday, July 22, 2025
Retailers in the UK are renewing their calls for the government to reinstate tax-free shopping for international visitors, hoping it will boost spending from tourists. The Association of International Retailers (AIR) highlights that the UK has experienced a noticeable decline in visitor spending since the scheme was abolished in 2021. According to retailers, the government is overlooking the broader economic benefits of tax-free shopping, which they believe would significantly benefit the UK economy. However, with ongoing fiscal challenges and budgetary pressures, convincing the government to change its position on the matter is proving difficult.
The push for reinstating tax-free shopping has grown as the government works on a strategy to bolster the visitor economy. The AIR argues that the removal of VAT on purchases could lead to an additional £3.65 billion ($4.9 billion) in spending from European Union visitors alone, as highlighted in a recent submission to ministers. This figure is in addition to the £1.5 billion in potential spending that has been diverted to other countries since the UK scrapped the scheme in 2021.
The report presented to the Department for Culture, Media, and Sport highlights the continued tension between retailers and the government. The previous Chancellor of the Exchequer ended the tax refund system following the UK’s departure from the EU. This change meant that international travelers could no longer reclaim the 20% VAT sales tax on their purchases, which had been a key selling point for many visitors.
Since then, successive Conservative and Labour governments—aside from the brief period under former Prime Minister Liz Truss—have agreed with the view that the policy cost the Treasury more than it was worth. This assessment has been supported by the Office for Budget Responsibility’s analysis. The government has argued that the VAT refund system was a drain on public funds and did not generate enough economic benefits to justify its continuation.
As the current Finance Minister prepares for the autumn budget, the situation remains complicated. Facing a fiscal shortfall, exacerbated by costly U-turns on welfare cuts and a bleak economic growth outlook, the government’s ability to make any changes to tax policies is limited. This makes it less likely that the government will reconsider its stance on tax-free shopping, despite growing pressure from retailers to reinstate the scheme. The increase in payroll taxes earlier this year has also put additional strain on businesses, which may further complicate the government’s willingness to accommodate new fiscal measures.
Despite this, UK retailers persist in claiming that the country has fallen behind nations such as France and Spain, which still offer tax-free shopping for non-EU visitors. These countries continue to attract higher spending from international tourists, while the UK faces a competitive disadvantage. Retailers claim that the Treasury has failed to properly account for the broader economic benefits that could result from bringing back the scheme, particularly the increased spending by tourists, which could have a positive ripple effect across the economy.
Several prominent retailers have publicly supported the reinstatement of tax-free shopping. Last year, these businesses united to sign an open letter urging the government to bring back the VAT refund system. They argue that the decline in international spending has negatively impacted the retail sector and that restoring tax-free shopping could provide a vital boost to the industry.
The Association of International Retailers (AIR) asserts that reinstating the policy would make the UK the only country in Europe offering VAT rebates to 450 million EU consumers. This would give the UK a unique advantage in attracting international shoppers, potentially increasing visitor spending and improving the country’s competitiveness in the global tourism market. The group also points to statistics showing that visitor spending in the UK in 2022 was only 92% of 2019 levels. In contrast, Spain saw spending rise to 106% of pre-pandemic levels, while France hit 110%, further underscoring the UK’s disadvantage without a tax-free shopping system.
The debate over tax-free shopping for tourists remains a contentious issue, with UK retailers arguing that reinstating the scheme could help reverse the decline in visitor spending. However, with the government facing significant fiscal pressures and ongoing challenges, it remains to be seen whether the policy will be revived in the near future.
