Retailers have called on Chancellor Rachel Reeves to scrap the so-called “tourist tax”, warning that Britain is losing billions in economic growth as tourists choose to shop elsewhere in Europe.
In a letter signed by more than 300 chief executives, including leaders from John Lewis, British Airways, Fortnum & Mason and the Royal Opera House, Reeves was urged to reintroduce VAT-free shopping for foreign visitors in her next Budget.
The signatories, who also include notable figures such as hotelier Sir Rocco Forte, and fashion designers Sir Paul Smith and Anya Hindmarch, argue that the removal of tax-free shopping has left the UK at a “huge global disadvantage”.
The letter read: “What has become known as the ‘tourist tax’ has turned out to be a staggering target for the UK. The UK is now the only country in Europe that does not offer tax-free shopping for tourists, leaving UK businesses at a global disadvantage.” This not only affects a few luxury stores in London’s West End, but the entire tourism economy is affected.
Brexit and the tourist tax
The tourism tax signals the end of VAT-free shopping for tourists, a policy scrapped by then-Chancellor Rishi Sunak in the wake of Brexit. The Treasury confirmed that reinstating the scheme would cost up to £2 billion a year in lost tax revenue. However, retailers argue that this assessment is flawed and ignores the broader economic benefits of encouraging tourism.
Research by the Center for Economics and Business Research (Cebr) suggests the decision costs the UK £11.1 billion in lost GDP each year and prevents 2 million tourists a year. The letter stresses that tourists are increasingly choosing to visit cities such as Paris, Milan and Berlin where VAT discounts are still available, rather than shopping in the UK.
Brian Duffy, CEO of Watches of Switzerland, highlighted the potential economic benefits of reintroducing VAT-free shopping: “The new Labor government says growth is its priority. Bringing the UK in line with other countries and scrapping the tourism tax will have a positive impact.” Live on UK economic growth.
Treasury review and ongoing discussion
Earlier this year, former Chancellor Jeremy Hunt ordered the Office for Budget Responsibility (OBR) to review the impact of the tourism tax. Despite the retail sector’s concerns, the Office for Budget Responsibility confirmed that the Treasury’s initial calculations, which concluded that the tourism tax would not significantly impact the economy, were accurate. The OBR noted that reinstating VAT-free shopping was unlikely to increase UK production capacity.
However, retail bosses are calling for a fresh assessment. The letter to Reeves asks for “decisive action” and a new substantive review of the case to address the financial harm the tourism tax is alleged to be causing.
Economic impact and industrial pressures
Retailers argue that the tourism tax is not just a burden on luxury brands in London’s West End, but affects the entire hospitality and retail sectors across the UK. The tax discourages international visitors from spending in Britain, hurting businesses across the country that rely on tourism revenues.
Government resistance to restoring tax-free shopping has frustrated many in the retail sector, with industry leaders warning that British businesses are being forced to compete on an unlevel playing field. Sir Rocco Forte and other signatories insist that reintroducing VAT-free shopping will not only bring the UK into line with other European countries, but will also boost tourism, generate additional revenue and support economic growth.
The Treasury has yet to respond to these latest calls, but as Rachel Reeves prepares to present her first Budget, pressure is mounting from retail leaders who argue that scrapping the tourist tax could provide a much-needed boost to the UK economy post-Brexit.
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