Restoring UK Tax-Free Shopping Could Boost Economy by £11.5 Billion, Report Says

Reinstating tax-free shopping for tourists could inject £11.5 billion into the UK's Gross Domestic Product (GDP) and support 153,000 jobs, according to a new report. The analysis, commissioned by the Heart of London Business Alliance (Holba) and conducted by the Centre for Economics and Business Research (Cebr), suggests that bringing back the Value Added Tax (VAT) refund scheme would also deliver a net gain of £2.6 billion to the Treasury.

Before the VAT-free shopping initiative was abolished in 2021, non-European Union visitors could claim a refund on purchases made in the UK, effectively reducing prices by 20%. The report estimates that restoring this scheme could attract up to 2.35 million additional international tourists annually.

Currently, tourists are reportedly choosing to spend money in European cities like Paris, Milan, and Berlin instead of the UK. Data from 2024 indicates that while international visitor numbers have almost returned to pre-2020 levels, their spending remains significantly lower. International visits were 1.3% below 2019 figures, but spending was down 8.7%, with the average expenditure per visit dropping from £848 to £786. The campaign group 'Scrap the Tourist Tax' has garnered support from over 500 businesses, including major brands like Giorgio Armani and Pernod Ricard, who argue that the benefits of increased tourism outweigh the cost of tax refunds. The restoration of the scheme would also extend VAT-free shopping to EU visitors, making the UK the only major European destination to offer this to both EU and non-EU travelers.

Mayor of London, Sadiq Khan, has reiterated his support for the policy, urging the new Chancellor John Healey to review the measure in the upcoming Budget on October 28. Khan stated that reinstating tax-free shopping would signal to the world that the UK is open for business. He added that the previous government's decision to remove the scheme was a significant error that has caused the UK to lag behind other European cities in visitor spending.

Ros Morgan, chief executive of Holba, described the report as providing the most compelling evidence to date for abolishing the tax. She emphasized that the UK's tourism sector is a vital economic asset and that the country has become less competitive compared to its European rivals. Morgan concluded that restoring tax-free shopping is a clear pro-growth measure, particularly relevant at a time when economic growth is a top government priority.