Growing calls on government to reinstate VAT-free tourist shopping to boost retailers

The government is facing increasing demands by business groups and retailers to reverse its decision to scrap tax-free shopping for non-EU tourists in the UK.

The incentive previously allowed shoppers from countries outside of the European Union to reclaim 20% in VAT when making purchases in the UK. It was scrapped following Brexit with the government saying it would cost the Exchequer £1.3n in 2024/25, increasing to £2bn in 2025/26.

Former prime minister Liz Truss and ex-chancellor Kwasi Kwarteng announced plans to reintroduce the policy and extend it to EU visitors in their controversial mini-Budget in September 2022. However, chancellor Jeremy Hunt axed it again when he became chancellor.

Various business groups and retailers have said the initiative should be re-introduced because the UK is losing money and visitors to European Union countries that offer the incentive and bringing it back would also help British firms struggling with high costs.

Despite the government saying it leads to tax losses, research by Oxford Economics said it would actually generate a £4.1bn boost to GDP and support 78,000 jobs.

A letter to Jeremy Hunt from the mayor of London Sadiq Khan as well as various large retailers, hospitality firms and business groups said:

"The return of VAT-free shopping would provide a much-needed boost to London’s retail and hospitality sectors at a time they need it most.

"The prime minister has stated that his ambition is to grow the economy this year, and the government should be looking for ways to secure the capital's status and reputation as a global city that is open to visitors and investment – not providing reasons for tourists and businesses to look elsewhere."

Smaller businesses also back the call for the re-introduction of VAT-free shopping:

Karen MacDonald is the founder of beauty retailer Blomma Beauty, based in central London. She told Enterprise Nation:

"As a small business, we'd love to see the return of tax free shopping in the UK. Our store in King's Cross is right next to King's Cross and St Pancras stations and the Eurostar terminus, a major transport hub that sees many domestic and international tourists every week.

"With the cost of living crisis affecting spend from our UK-based customers, having an incentive like VAT-free shopping for our international customers would put us on an even keel with other countries; incentivising higher spending and helping us fill the deficit in retail spend across the board."

Will the government re-introduce tax-free shopping?

Trade minister Nigel Huddleston was questioned about the subject in an interview with LBC Radio. He said the chancellor would consider the policy ahead of his autumn statement later this year, but he added that the government requires data to help with its decision:

"If we got rid of the tax, then there would be some loss of revenue which we need to pay for our essential services. So it's all a matter of balance. The appeal is please give us the data and the information and then that will help inform our decision-making."

If you have a view on the re-introduction of VAT-free shopping in the UK, email Dan.