British Businesses Urge Chancellor to Reinstate Tax Free Shopping for Tourists

Luxury retailers and fashion houses are renewing calls for the reintroduction of tax-free shopping for international tourists as transatlantic trade faces increased pressure from US tariffs. Leading UK trade bodies have expressed concerns that the removal of the VAT exemption for visitors has damaged the competitiveness of British businesses while also diminishing the UK’s appeal as a global shopping destination.

The tax-free shopping scheme, which allowed tourists to reclaim the 20 per cent VAT on purchases, was abolished in 2021. This decision, made post-Brexit, has reportedly contributed to a decline in sales from high-spending international visitors. Industry groups, including the British Retail Consortium, the British Beauty Council, Walpole and the British Fashion Council, have urged Chancellor Rachel Reeves to reverse this policy to help counter the impact of US trade tariffs on key British industries.

In a letter addressed to the Chancellor, these organisations warned that current trade disruptions are driving UK businesses to scale back their presence in the United States. Many companies are cutting wholesale prices, cancelling orders and, in some cases, exiting the American market altogether. With tariffs making British goods less attractive to US consumers, associations argue that securing domestic demand through policy changes like tax-free shopping is essential.

The absence of VAT rebates for shoppers visiting from abroad is further pushing affluent tourists to shop in countries like France and Italy, where tax-free schemes remain in place. High-spending visitors often prefer destinations where their purchases offer better value. According to Bain & Company, for every pound spent by a wealthy tourist in the UK, up to £8 is generated across the wider economy. However, with inbound tourist spending forecasted to remain nearly 10 per cent below pre-pandemic levels in 2024, the lack of tax incentives has compounded challenges for the UK’s retail sector.

Retailers argue that reinstating VAT-free shopping could help stimulate spending in areas such as luxury goods, culture and entertainment, which rely heavily on international visitors. The government had previously estimated that the scheme’s abolition would save around £540 million annually by 2025-26. However, critics argue that the long-term losses from reduced tourism revenues far outweigh initial cost savings.

While some high-end businesses have chosen to refocus their strategies on other regions, the wider weakening supply chains and reduced capital inflow underline the urgent need for targeted policy changes. Tax-free shopping, according to business leaders, is not an optional measure but a proven method for driving economic growth in the face of global competition and volatility.

The Treasury has stood by its decision, citing no immediate plans to reintroduce the scheme. It points to existing VAT relief available for items exported directly to the purchaser’s home country. However, with mounting pressure from retail and luxury sectors, the debate continues on the potential benefits that a return to VAT-free shopping could bring to the UK economy.