UK under pressure to restore VAT-free shopping

20-05-25

The United Kingdom is facing mounting pressure from business leaders and the tourism sector to reinstate the VAT-free shopping scheme for international visitors, which was abolished in 2021 following Brexit. The removal of this benefit has raised concerns about the country’s competitiveness compared to other European destinations that continue to offer tax refunds to tourists.

Over 300 senior executives from major companies—including John Lewis, British Airways, and Fortnum & Mason—have urged Chancellor Rachel Reeves to reconsider the decision. They argue that the lack of tax incentives has driven tourists to cities like Paris and Milan, where VAT can still be reclaimed on purchases. This shift has negatively impacted key areas of the British economy, from retail and hospitality to cultural tourism.

Economic studies support these concerns. The Centre for Economics and Business Research (CEBR) estimates that the removal of the VAT refund scheme could be costing the UK up to £11.1 billion in annual GDP and the loss of approximately two million tourists each year. Furthermore, reinstating the scheme could potentially generate an additional £2.5 billion in tax revenues and create thousands of jobs across the country.

Despite these projections, the UK Treasury has expressed reservations about the financial feasibility of reintroducing VAT-free shopping, citing an estimated annual cost of £2 billion. However, business leaders dispute this figure, arguing that it fails to adequately account for the broader economic benefits brought by increased tourism and visitor spending.

The situation is compounded by recent international trade developments, such as tariffs imposed by the United States, which have affected British exports and heightened the urgency of attracting high-spending tourists. Luxury brands like Watches of Switzerland Group have reported declines in sales to international visitors, underscoring the need for policies that restore the UK’s appeal as a premier shopping destination.

Against this backdrop, Chancellor Reeves faces critical decisions in her upcoming budget. As she seeks to balance public finances with economic growth, reintroducing VAT-free shopping stands out as a potentially effective measure to stimulate tourism and support vital sectors of the British economy.

The business community hopes the government will give serious consideration to these proposals, acknowledging the vital role tourism and retail play in the UK’s economic recovery. The final decision could have significant implications for the post-Brexit economic landscape and the country’s position in the global tourism market.

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