The abolition of VAT-free shopping for tourists is severely impacting British retail and hospitality, warns an influential trade body.
Caroline Rush, Chief Executive of the British Fashion Council (BFC), asserts that the so-called tourist tax is not only harming luxury retail but also affecting the entire supply chain, including tourism and hospitality.
Rush highlighted that since the scheme, which allowed international visitors to reclaim 20% VAT on purchases, was scrapped in 2021 following Brexit, shoppers have been opting for other European destinations. “Businesses with a presence in London, Paris, Milan, and Spain report that international tourists prefer shopping in cities other than London,” she noted. “While London remains a hub of creativity, tourists are now waiting to make their purchases in European cities.”
The former Chancellor, Jeremy Hunt, had ordered a review after business leaders pushed for the scheme’s return. However, he decided against reinstating it in the last budget, citing the Office for Budget Responsibility’s (OBR) conclusion that the 2020 estimates justifying its removal were still valid. The OBR had estimated that restoring the scheme would cost £2 billion.
An analysis by the Centre for Economics and Business Research (CEBR) revealed that scrapping tax-free shopping has deterred two million tourists annually from visiting the UK, resulting in £11.1 billion in lost GDP. Rush argued that reintroducing the scheme would not only support the sector but also revitalise retail, hospitality, and tourism, enhancing the UK’s post-Brexit image. “It would be a fantastic win,” she emphasised.
The British Fashion Council, a not-for-profit organisation representing the UK fashion industry, counts Burberry, Mulberry, and Jimmy Choo among its members, with patrons including Jigsaw and River Island. The trade body has outlined several priorities for the new Labour government, such as reforming the business rates system, increasing trade and export investment for UK fashion designers, and introducing legislation to promote sustainable business practices to meet decarbonisation and net-zero targets.
