Fashion sector calls for reinstatement of tourist tax relief to boost UK retail

The end to VAT-free shopping for tourists is having a major impact on the UK’s retail and hospitality industries, an influential trade body has warned.

Caroline Rush, chief executive of the British Fashion Council (BFC), says the so-called tourist tax not only hurts luxury retail but also affects the entire supply chain, including tourism and hospitality.

Rush highlighted that since the scheme, which allowed foreign tourists to reclaim 20% of VAT on purchases, was scrapped in 2021 following Brexit, shoppers have been turning to other European destinations. “Businesses with a presence in London, Paris, Milan and Spain are reporting that foreign tourists prefer to shop in cities other than London,” she noted. “While London remains a creative hub, tourists are now looking to European cities for shopping.”

Former chancellor Jeremy Hunt ordered a review after business leaders pushed for the scheme to be reinstated. However, he decided against reinstating it in the latest Budget, citing a conclusion from the Office for Budget Responsibility (OBR) that the 2020 estimates justifying its removal were still valid. The OBR has estimated that reinstating the scheme would cost £2 billion.

Analysis by the Centre for Economics and Business Research (CEBR) found that the removal of duty-free shopping had deterred two million tourists a year from visiting the UK, resulting in a loss of £11.1 billion in GDP. Rush argued that reintroducing the scheme would not only support the sector but also boost retail, hospitality and tourism, boosting Britain’s image post-Brexit. “It would be a fantastic win,” she said.

The British Fashion Council, a non-profit organisation representing the British fashion industry, counts Burberry, Mulberry and Jimmy Choo among its members, and Jigsaw and River Island among its patrons. The trade body has set out several priorities for the new Labour government, including reforming the business rates system, increasing trade and export investment for British fashion designers and introducing legislation to promote sustainable business practices to achieve decarbonisation and net zero emissions targets.