Key facts
- Restoring VAT refunds for international visitors could boost the UK economy by £11.5 billion annually.
- The scheme's reinstatement is projected to attract up to 2.35 million more tourists each year.
- Additional annual spending from tourists is estimated at £4.1 billion.
- The UK is the only major European country to have abolished tax-free shopping for visitors.
- London's West End may have lost £310 million in the first half of 2025 due to the scheme's absence.
A future Conservative government has committed to reinstating VAT-free shopping for international visitors, a move that economic analysis suggests could significantly boost the UK's economy. The scheme, which was removed in 2021, is expected to attract millions more tourists and increase their spending, benefiting businesses across the country.
The economic consultancy CEBR, in a report commissioned by the Heart of London Business Alliance, estimated that restoring the VAT refund scheme would attract up to 2.35 million more tourists annually and generate an additional £4.1 billion in spending. This would provide a substantial boost to growth, employment, and tax revenues. The report found that while international visitor numbers have largely recovered since the COVID-19 pandemic, their spending has lagged, with expenditure remaining 8.7% lower than pre-pandemic levels.
CEBR's analysis indicated that if tax-free shopping had been in place last year, it would have boosted GDP by £11.5 billion. Earlier analysis by CEBR estimated the scheme's abolition was costing the UK around £11 billion in lost GDP and deterring approximately two million foreign visitors annually. London's West End alone is estimated to have lost £310 million in the first half of 2025. The report suggests the capital could gain £6.3 billion in gross value added, 65,500 jobs, and 1.13 million visitors if the scheme were reinstated.
The UK is now the only major European country without such a measure, facing competition from destinations like France and Italy. Sir Sadiq Khan, the Mayor of London, called the removal of tax-free shopping a "huge mistake" and urged the government to reinstate it. The benefits are expected to extend beyond London, with Scotland potentially generating £1.3 billion in additional GVA and almost 22,000 jobs, and Wales receiving about £172 million in GVA and 3,300 jobs.
Retailers and manufacturers have also advocated for the return of the scheme. Mulberry's chief executive argued it would increase work for British factories. Over 500 business leaders, including those from Rocco Forte Hotels, British Airways, and Marks & Spencer, have signed an open letter to John Healey calling for a review in the autumn budget. Sir Rocco Forte noted that tourists are choosing to spend their money elsewhere due to the lack of tax refunds.