Walk down any of London’s shopping streets today and you’ll notice something missing – not the designer shops or beautiful window displays, but the international tourists. The visitors who once spent freely in our stores, stayed in our hotels, dined in our restaurants and enriched the whole economy are no longer coming to our great city in the numbers we used to see. Many now bypass London entirely for Paris, Milan or Madrid. Those that do come are spending less than they used to. Why? Because the UK scrapped tax-free shopping.
This decision by the last government was one of the most self-defeating in recent memory. Since the abolition of VAT-free purchases for tourists in 2021, the UK has become the only major country in Europe which doesn’t offer VAT refunds to international visitors. And let me tell you the consequences are stark.
One is that fewer people are coming to our shores. New figures show that while visitor numbers in the UK have almost returned to pre-pandemic levels, we haven’t seen anything like the growth that our EU rivals have. And according to new figures from the Association of International Retail (AIR), tourist spending is eight per cent down on 2019. Meanwhile, in France and Spain, spending has surged ahead — up ten per cent and six per cent respectively. The difference? They still offer VAT-free shopping. Yet since 2021, we don’t. Despite the clear consequences.
To be clear, this isn’t just about a few luxury retailers in the West End. It’s about the entire visitor economy, across the entire UK. Shopping accounts for a quarter of all spending by international tourists. For every pound spent in VAT-free retail, visitors spend another £4 across hospitality, transport, culture and services. That’s money into the tills of restaurants in Edinburgh, taxi firms in Manchester, theatres in London and family-run hotels in the Lake District.
After the decision to scrap the scheme, the excess paid by foreign visitors on their shopping was branded a “tourist tax” – and rightly so. It has driven away high-value visitors and handed our European rivals a competitive advantage. Increasingly, British tourists are now doing their shopping on the continent, claiming VAT back in Milan while leaving British shops behind. Visitors from the US, China, the Middle East and now – post-Brexit – the EU’s 450 million citizens, are being actively incentivised to go anywhere but here.
Of course we see the impact across our hotel group, where tourists who once returned laden with parcels now cut UK trips short in order to add a stop in Europe where they do their shopping, knowing they can reclaim sales tax. This is madness – but it’s reversible.
The UK now has the chance to be the only country in Europe offering tax-free shopping to EU residents. That is a Brexit benefit hiding in plain sight. If we reintroduce a modern, digital tax-free shopping scheme, we can turn this lost opportunity into a £3.7 billion-a-year boost for Britain.
A new submission to ministers by AIR puts the case clearly. Reinstating VAT-free shopping could create at least 73,000 jobs, mostly outside London, where half of EU tourist spending takes place. Regional airports, local high streets and national visitor attractions would all benefit.
This policy has the backing of a united business voice. Heathrow, John Lewis, Primark, Mulberry, Bicester Village, the British Retail Consortium, the British Fashion Council, Historic Royal Palaces, Shakespeare’s Globe and dozens more are calling for it.
VAT-free shopping isn’t a tax loss, it’s a revenue driver
This wouldn’t cost the UK any money at a time of stretched public finances. The evidence is clear: VAT-free shopping isn’t a tax loss, it’s a revenue driver. The tax you give back on retail is repaid many times over in spending on goods and services where VAT still applies. Even when rebates exist, many low-value claims aren’t pursued, meaning the Exchequer still keeps much of the VAT while benefiting from broader economic activity.
This isn’t just a London issue. Many of our overseas visitors come to see family, tour our regions or explore smaller cities. A thriving visitor economy supports restaurants in Glasgow, boutiques in Bath and hotels in Newcastle just as much as it supports central London.
Britain now has a unique opportunity to become the global capital for shopping – a status we once held with pride. Now, with Britain outside the EU, we can become the only country in Europe offering tax-free shopping to EU tourists.
The government talks about making Brexit work. Here is a chance to do exactly that. It’s a simple change that requires only a willingness to admit that a mistake was made and to put it right.
The Department for Culture, Media and Sport is currently preparing a new Visitor Economy Growth Plan. If ministers are serious about boosting tourism, supporting jobs and reviving our high streets, then reintroducing tax-free shopping should be at the top of that plan.
It is not often that a government is presented with an economic lever that can deliver billions of pounds in new spending, tens of thousands of new jobs and stronger regional growth, all without raising taxes or requiring long-term subsidies. Yet that is exactly the opportunity sitting in front of ministers now with the proposal to reintroduce tax-free shopping for international visitors.
It would deliver rapid, measurable gains for the UK. It is fiscally sound, economically stimulative, regionally inclusive and politically feasible. In short: it’s a no-brainer.
Now is the time for action. Let’s stop pushing tourists into the arms of our rivals and start attracting them back to Britain. Let’s scrap the tourist tax, reinstate VAT-free shopping, and make the UK the world’s greatest shopping destination once again.
Sir Rocco Forte is Chair of Rocco Forte Hotels
