Britain’s luxury sector has renewed calls for the return of tax-free shopping for tourists as it warned that President Trump’s tariff regime risked pushing high-spending American shoppers towards other European countries.
Walpole, the body for British luxury brands including Alexander McQueen, Burberry and Harrods, said the government should urgently reinstate the VAT refund scheme to help the UK stay competitive against countries such as France and Italy amid the tariff chaos.
Helen Brocklebank, Walpole chief executive, said “more Americans will go on holiday to Europe to do their shopping” because of increased prices caused by new tariffs, “but we’ve got a competitive disadvantage because of the lack of tax-free shopping”.
The scheme, which allowed international shoppers to reclaim 20 per cent VAT on purchases, was scrapped in 2021, a move deeply unpopular among the UK’s retail and hospitality sectors. Brocklebank said it was a “crazy, wrong-headed decision” and called on Labour’s leadership to reverse it.
“It’s still as unpopular today as it was five years ago, but it was made by the previous administration,” she said. “It’s not your decision, Rachel Reeves or Keir Starmer, and it’s a really easy way of you showing that you can help these businesses domestically [that are affected by the tariffs].”
The luxury sector, which had already been facing slowing demand and an eroding customer base in the past year, has been further hit by the escalating trade war between China and the US.
The US imports a number of luxury goods from the UK, such as wines and spirits, cheese, chocolate, high-end clothing, furniture and cars. US tariffs on Britain at 10 per cent and the European Union at 20 per cent may cause price increases to be passed on to American consumers, who could in turn cut back on these purchases or travel to Europe to buy the products at a cheaper price.
Brocklebank said reinstating VAT-free shopping would show that the UK is “open for business and also show businesses that [the government] is doing absolutely everything it can in its power to help them in this time of immense global crisis, when it’s getting more and more difficult to get products into the US”.
Lisa Nandy, the secretary of state for culture, media and sport, recently told Elle UK that the government “could explore” restoring VAT-free shopping after hearing “very loud and clear” the calls from the industry to scrap the so-called tourist tax. She said that fashion, in particular, was in the “soul of the nation” and ministers recognised its “centrality” to the economy.
However, a Treasury spokesman said it had “no plans to introduce a new tax-free shopping scheme in Great Britain”, adding: “Visitors can continue to claim VAT relief where the items purchased are shipped directly to their home country as exports.”
Under the previous government, Jeremy Hunt ordered a review by the Office for Budget Responsibility (OBR) after hundreds of calls from business leaders for the move to be reversed.
However, he decided not to scrap the “tourist tax” after the OBR concluded that estimates it made in 2020, which had influenced the initial decision to scrap VAT-free shopping, “still appear reasonable”. It had estimated that withdrawing the scheme would save the exchequer around £540 million per year by 2025-26, while restoring it would cost the exchequer £2 billion.
An analysis by the Centre for Economics and Business Research found that the removal of tax-free shopping had deterred two million tourists a year from visiting the UK and was costing £11.1 billion in lost GDP.
The luxury sector has warned that the axing of VAT-free shopping for tourists is harming more than just retailers and is affecting the entire tourism ecosystem, including hotels. The removal of the tax-free shopping policy has led to a decrease in overall spending and fewer tourists visiting restaurants and hotels, according to trade bodies such as the New West End Company.
