Reinstating tax-free shopping for tourists could significantly boost the United Kingdom's Gross Domestic Product (GDP) by £11.5 billion and support approximately 153,000 jobs, according to a new report commissioned by the Heart of London Business Alliance (Holba) and conducted by the Centre for Economics and Business Research (Cebr).
The analysis indicates that restoring the VAT-free shopping initiative, which was abolished in 2021, could also result in a net gain of £2.6 billion for the Treasury. Before its removal, the scheme allowed non-EU visitors to claim a tax refund on purchases made in the UK, effectively reducing item costs by 20 percent.
Impact on Tourist Spending
The report estimates that reinstating the scheme could attract up to 2.35 million additional international tourists annually. Currently, a significant portion of tourist spending is being directed to other European cities such as Paris, Milan, and Berlin.
While international visitor numbers have nearly rebounded to pre-pandemic levels, spending has not kept pace. In 2024, international visits were 1.3 percent below 2019 figures, but spending was 8.7 percent lower, with the average expenditure per visit declining from £848 to £786.
The campaign 'Scrap the Tourist Tax,' supported by over 500 businesses including major brands like Giorgio Armani and Pernod Ricard, argues that the benefits of increased visitor spending outweigh the costs of tax refunds. The restoration of the scheme would also extend eligibility to EU visitors, making the UK the only major European destination offering VAT-free shopping to both markets.
Calls for Policy Reversal
Mayor of London, Sadiq Khan, has publicly supported the reinstatement of tax-free shopping, urging new Chancellor John Healey to consider a review in the upcoming Budget on October 28. Khan stated that bringing back the policy would signal to the world that London and the UK are open for business.
He further commented that the removal of tax-free shopping by the previous government was a considerable error, contributing to the UK trailing behind other European cities in visitor spending. The Cebr report, he noted, provides compelling evidence of the economic advantages, including increased visitor numbers, substantial economic growth, job creation, and increased public revenue.
Ros Morgan, chief executive of the Heart of London Business Alliance, described the report as providing the 'most compelling evidence yet' to reverse the policy. She emphasized that the UK's tourism sector is a significant economic asset, but current policies make the country less competitive compared to its European rivals. Morgan highlighted that restoring tax-free shopping is a straightforward pro-growth measure, particularly relevant at a time when economic growth is a top government priority.