UK ‘worst in the world’ over tourist tax, shop bosses warn Rachel Reeves
Retail leaders are calling 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 senior officials, including the leaders of John Lewis, British Airways, Fortnum & Mason, and the Royal Opera House, Reeves is being urged to re-introduce VAT-free shopping for overseas visitors in his next Budget.
The signatories, including high-profile figures such as hotelier Sir Rocco Forte, fashion designers Sir Paul Smith and Anya Hindmarch, said the removal of duty-free shopping had left the UK “worst in the world.”
The book says: “What has come to be known as the ‘tourist tax’ has become a remarkable policy for the UK. The UK is now the only country in Europe that does not offer tax-free shopping to tourists, leaving British businesses in the worst position in the world. This is not just affecting a few luxury shops in London’s West End… The whole tourist economy is affected.”
Brexit and the tourist tax
The tourist tax means the end of tourist purchases without VAT, a policy scrapped by then-chancellor Rishi Sunak after Brexit. The Treasury has stressed that restoring the system would cost up to £2 billion a year in lost tax revenue. However, vendors argue that this assessment is flawed and ignores the broader economic benefits of promoting tourism.
Research by the Center for Economics and Business Research (Cebr) suggests that this decision costs the UK £11.1 billion in lost GDP each year and deters 2 million visitors a year. The letter emphasizes 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 the Watches of Switzerland Group, highlighted the potential economic benefits of bringing back VAT-free shopping: “The new Labor Government says growth is its priority. Bringing the UK into line with other countries and removing the tourist tax would have a positive impact on the growth of the UK economy.”
Treasury review and ongoing debate
Earlier this year, former chancellor Jeremy Hunt ordered the Office of the Budget (OBR) to review the impact of the tourist tax. Despite the concerns of the retail sector, the OBR maintains that the Treasury’s initial calculations, which concluded that the tourism tax would not have a significant impact on the economy, were accurate. The OBR noted that reintroducing VAT-free purchases would not increase UK manufacturing capacity.
However, store managers want a new test. The letter to Reeves calls for “decisive action” and a new, targeted review of the matter to address the financial damage the tourist tax is allegedly causing.
Economic impact and industrial pressure
Retailers argue that the tourist tax is not just a burden on luxury businesses in London’s West End but affects the entire tourism and retail sector across the UK. The tax discourages foreign tourists from spending in Britain, hurting businesses across the country that depend on tourism revenue.
The government’s refusal to restore the duty-free shopping system has left many in the retail industry 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 the reintroduction of VAT-free shopping will not only link the UK to other European countries but will boost tourism, bring in more revenue, and support economic growth.
The Treasury has yet to respond to these latest calls, but as Rachel Reeves prepares to deliver her first Budget, pressure is mounting from retail leaders who say scrapping tourist tax could provide a much-needed boost to the UK’s post-Brexit economy.
