Tax-free tourist shopping return would help economy, create 73,000+ jobs in UK says AIR report

UK retailers and the organisations that represent them continue to campaign for the return of tax-free shopping for tourists in Britain despite a seeming lack of interest from the current Labour government after the previous government abolished it.

On Tuesday, a submission to ministers from the Association of International Retail (AIR) claimed that a new tax-free shopping scheme would offer an almost-£3.7 billion “Brexit benefit” at the bare minimum as it would  take advantage of the unique opportunity for the UK to create a valuable new market of EU shoppers.

And it also said that such a scheme would create “at least” 73,000 new jobs serving EU shoppers alone.

The Conservative government scrapped VAT rebates for international visitors when Brexit finally came into effect. That was despite the retail industry having been hoping that with Britain no longer in the EU the scheme would be expanded to include hundreds of millions of EU shoppers. 

It might have made the UK potentially the most attractive shopping major market globally with, as AIR says, the UK being “the only destination in Europe offering VAT rebates to 450 million EU consumers as well as those from the rest of the world, creating a ‘vast new market’ and making the UK the global shopping capital”.

AIR also said that reintroducing tax-free shopping, which had existed for decades, “would benefit every region by firing up economic growth”.

VAT refunds for visitors to the UK were previously seen as a major driver of tourism and the decision to axe them was controversial and led to it being branded a “tourist tax” by critics. 

AIR said “hundreds of business leaders are now calling for a rethink on the policy, arguing that as well as retailers the entire tourist economy has been affected, whether that be regional tourist centres or manufacturers down the supply chain, hotels and restaurants, taxis, galleries and museums and cafes”.

It said those that have called for a new tax-free shopping scheme include: Primark, M&S, Paul Smith, Heathrow, John Lewis, Bicester Village, Mulberry, the Royal Opera House, Shakespeare’s Globe, Historic Royal Palaces, Chapel Down, Charlotte Tilbury, Fortnum & Mason, Claridge’s, Boodles, Pragnell, Fabergé, The Hippodrome Casino, Elizabeth Gage, Hanover Health Foods, N Peale, David Morris Jewels, The Langham Hotel, Anderson & Sheppard, Berry’s Jewellers, Breitling, Clermont Hotel Group, Como Holding, Lumbers, Trotters, Essential Edinburgh Business Improvement District, British Retail Consortium, British Fashion Council, British Beauty Council, Walpole, Heart of London Business Alliance (HOLBA) and UKInbound.

The new submission to the Department for Culture, Media and Sport comes as that department is preparing a new Visitor Economy Growth Plan expected to launch this autumn.

UK losing out to European destinations

AIR’s document also “warns that international visitors are increasingly being driven into the arms of the UK’s rivals thanks to the absence of VAT rebates”, using new figures showing that in the UK, the post-Covid tourism recovery has been weaker than elsewhere in Europe.

How so? Visitor numbers to the UK had by last year recovered to only 96% of their 2019 levels compared with 101.9% in Spain and 100% in France. 

And the figures for actual tourist spend are even more worrying. In the UK, spending last year stood at 92% of 2019 levels compared to 106% in Spain and 110% in France. So, in the UK fewer visitors are arriving and those that do are spending less than they used to. In Spain and France, a larger or equal number of visitors are arriving and they’re spending more.

And some of those visitors to France, Spain (and other countries) are British, attracted by being able to shop VAT-free, which they couldn’t do before Brexit, so that’s even more spend being lost to UK stores. 

Back in the UK, Visit Britain estimates that shopping accounts for 25% of all international visitor spending, more than any other single item. And to counter government claims that the VAT-free scheme was costing the country money, it added that for every £1 spent in VAT-free shopping, around £4 was spent on goods and services on which VAT was charged and not refunded.

As for the close-to-£3.7 billion figure quoted earlier, AIR said that if spending on VAT-free shopping by new EU shopping-led visitors to the UK was at the same level as British VAT-free spending in the EU in 2024, there would be a total additional spend of at least £3.65bn. This would be on top of an estimated £1.5bn of annual spending by non-EU visitors diverted to France, Spain, Italy and other tax-free destinations when VAT rebates were ended. 

Derrick Hardman, chair of AIR, 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 450m 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.

“These would be additional visitors, spending additional money in hotels, restaurants, and on travel, culture and entertainment, all of which generate additional VAT for the Exchequer.”