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Retail leaders are calling on Chancellor Rachel Reeves to scrap the so-called ‘tourist tax’, warning Britain is losing billions in economic growth as tourists choose to shop elsewhere in Europe
In a letter signed by more than 300 CEOs, including leaders from John Lewis, British Airways, Fortnum & Mason and the Royal Opera House, Reeves is urged to reintroduce VAT-free shopping for overseas visitors in her upcoming budget.
The signatories, which also include high-profile figures such as hotelier Sir Rocco Forte, fashion designers Sir Paul Smith and Anya Hindmarch, claim that the abolition of duty-free shopping has put Britain at a “huge global disadvantage”.
The letter states: “What has become known as the ‘tourist tax’ has become a spectacular own goal for Britain. Britain is now the only country in Europe not to offer duty-free shopping to tourists, putting British businesses at a huge disadvantage globally. This doesn’t just affect a few luxury shops in London’s West End… The entire tourism economy is affected.”
Brexit and the tourist tax
The tourist tax refers to the end of VAT-free shopping for tourists, a policy that then-Chancellor Rishi Sunak scrapped in the wake of Brexit. The Treasury has insisted that reintroducing 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 wider economic benefits of boosting tourism.
Research from the Center for Economics and Business Research (Cebr) shows that the decision is costing the UK £11.1 billion in lost GDP annually and deterring 2 million tourists every year. The letter highlights that tourists are increasingly choosing to visit cities such as Paris, Milan and Berlin, where VAT rebates are still available, rather than shopping in Britain.
Brian Duffy, CEO of the Watches of Switzerland Group, highlighted the potential economic benefits of reintroducing VAT-free shopping: “The new Labor government says its priority is growth. Bringing Britain in line with other countries and abolishing the tourist tax would have an immediate positive impact on British economic growth.”
Treasury research and ongoing debate
Earlier this year, former Chancellor Jeremy Hunt commissioned the Office for Budget Responsibility (OBR) to assess the impact of the tourist tax. Despite concerns from the retail sector, the OBR maintained that the Treasury’s initial calculations, which concluded that the tourist tax would have no significant impact on the economy, were accurate. The OBR noted that the restoration of VAT-free shopping is unlikely to increase the UK’s manufacturing capacity.
Nevertheless, retail bosses are calling for a reassessment. The letter to Reeves calls for “decisive action” and a new, objective assessment of the issue to address the financial damage the city tax would cause.
Economic impact and industrial pressure
Retailers claim that the tourist tax is not just a burden on luxury brands in London’s West End, but has implications for the entire hospitality and retail sector in the UK. The tax is discouraging international visitors from spending in Britain and hurting businesses across the country that rely on tourism income.
The government’s opposition to restoring the duty-free shopping scheme has left many in the retail sector frustrated, with industry leaders warning that British businesses are being forced to compete on an uneven playing field. Sir Rocco Forte and other signatories insist that reintroducing VAT-free shopping would not only bring Britain into line with other European countries, but would also boost tourism, generate additional income and support economic growth.
The Treasury has not yet responded to these latest calls, but as Rachel Reeves prepares to release her first budget, pressure is mounting from retail leaders who argue that scrapping the tourist tax could provide a much-needed boost to the British post-Brexit economy.