Restoring tax-free shopping would deliver multi-billion pound sales boost

A report by the Association of International Retail (AIR) has called on the government to scrap the Rishi Sunak government’s 2021 decision to get rid of VAT rebates for tourists – which was widely criticised at the time as a ‘tourist tax’.

AIR argue in a submission to the Department for Culture, Media and Sport, that Brexit has created a chance for the UK to offer tax-free shopping to both European and non-European visitors – a potentially 450 million strong potential market of shoppers.

Chair of AIR Derrick Hardman said: “With Britain no longer in the EU, we have the opportunity to become the best place in the world for shopping.

“While the 26 EU countries offer VAT-free shopping to non-EU visitors, including those from the UK, Britain is now in the unique position of being the only major European country where this attraction could also be offered to all 450 million EU residents.

“This would give Britain an unchallengeable competitive advantage within Europe. In addition to levelling the playing field with our EU competitor destinations who all offer VAT refunds to non-EU visitors, Britain would have the unique opportunity to create a whole new, shopping-led EU tourism market.”

The AIR report not only flags the potential opportunities for UK retail if the tax was removed, but also highlights how keeping it in place is actively hurting the country’s post-Covid-19 tourism recovery.

It shows that visitor numbers to the UK recovered to 96% of their 2019 levels last year, compared to 101.9% in Spain and 100% in France.

UK tourist spending stood at 92% of 2019 levels last year, compared to 106% in Spain and 110% in France. It also found evidence that some British shoppers are actually travelling to the EU to buy items, where they can now claim a VAT refund.

AIR calculates that if VAT-free shopping by new EU tourists was allowed at the same level as British VAT-free spending in the EU last year, that would represent a boost of £3.65bn at least to the economy.

On top of that, AIR estimated it would also create an additional £1.bn of annual spending by non-EU visitors diverted to France, Spain, Italy and other tax-free destinations when VAT rebates were ended.

Using the BRC’s calculations that one new retail job is created for every £50,000 of spending, AIR said a new VAT refund policy for EU tourists could create at least 73,000 additional jobs across the UK.

High end retailers like Fortnum & Mason and Burberry have long called for VAT rebates to be reinstated to help the UK reclaim its former status as one of the world’s premier shopping locations.

Chair of luxury jeweller Boodles Michael Wainwright said: “A new tax-free shopping scheme would more than pay for itself thanks to the extra spending that would be stimulated across the economy, not just in retailers but in hotels, restaurants, tourist attractions, taxis and so on”.