Chancellor Rachel Reeves is under mounting pressure to reinstate tax-free shopping for overseas visitors after new research revealed Britain is losing billions of pounds annually to rival European destinations.
According to figures published by the Association of International Retail (AIR) and payments firm Global Blue, spending by non-EU visitors to the UK has recovered to just 75% of pre-pandemic levels. The shortfall follows the Conservative government’s decision in 2021 to scrap the VAT exemption that previously allowed international tourists to reclaim tax on shopping.
In contrast, other major European markets are experiencing record growth. Visitor spending is up 166% in Spain, 159% in France and 137% in Italy compared with 2019, the data shows.
The report estimates that the UK missed out on around £2 billion in tourist expenditure last year alone, with the sharpest declines seen among high-spending visitors from the Gulf. Shoppers from Saudi Arabia and Kuwait spent 27% less than before the pandemic, while American tourists—who have cushioned some of the decline—are spending at a slower pace than in competitor destinations.
Industry groups argue that the absence of tax-free shopping is undermining the UK’s competitiveness in luxury retail and hospitality. “The UK is shooting itself in the foot. This is economic madness,” one retail body warned.
The pressure on visitor spending is compounded by proposals from some local councils to introduce so-called “tourist taxes” in the form of nightly charges on hotel and B&B stays. Cities such as Oxford, Liverpool and Bournemouth are considering levies, while Scotland introduced new powers last year that made Aberdeen the most expensive destination in Europe for visitor taxes.
However, several Scottish councils have since paused their plans amid a backlash, with critics cautioning that the additional charges risk discouraging much-needed international visitors.
Retailers are now lobbying Reeves to use her November Budget to restore the VAT exemption. Supporters say the move could help the UK claw back lost revenue, revive high-end shopping districts and generate billions in wider economic activity through associated spending on hotels, restaurants and cultural attractions.
The debate highlights the balancing act facing the Treasury as it seeks to bolster growth without sacrificing tax revenue. For the retail and tourism sectors, however, the message is clear: unless the Government acts, Britain risks ceding more ground to its European rivals in the global race for international visitors.
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