Credit: bmmagazine.co.uk
Britain’s leading retail, luxury, and fashion groups are calling on Chancellor Rachel Reeves to reinstate tax-free shopping for international visitors, warning that mounting pressure from US tariffs is eroding UK competitiveness and forcing businesses to scale back transatlantic operations.
In a joint letter four major trade bodies — the British Retail Consortium, British Beauty Council, British Fashion Council, and Walpole, which represents UK luxury brands — urged the Treasury to act swiftly. Their message: restoring VAT-free shopping is not a luxury, but a “proven growth strategy” needed to help the UK economy weather worsening global trade disruption.
“US tariffs will negatively impact our businesses’ profitability,” the organisations wrote. “We are considering how we, as associations, and the UK government could best support businesses at this time.”
The plea comes amid rising concern over the economic fallout from President Trump’s trade policies, which have seen tariffs imposed on a range of UK goods. British businesses in fashion, beauty and luxury sectors are reporting falling demand from American buyers, rising pressure to reduce wholesale prices, and order cancellations.
Some UK companies have already reduced exposure to the US market, while others report a shift in American consumer behaviour — opting to travel abroad for luxury purchases rather than pay higher prices at home. But with the UK no longer offering tax-free shopping, those dollars are increasingly being spent in Paris, Milan and Madrid, where tourists can still reclaim VAT on purchases.
A missed opportunity for British business?
Tax-free shopping for tourists was scrapped in 2021 following Brexit, despite widespread opposition from business groups. The policy had allowed international visitors to reclaim the 20% VAT on purchases made in the UK, providing a crucial incentive for high-spending tourists.
The industry argues that removing the scheme has made the UK less competitive as a shopping destination — just as other European cities double down on tax rebate schemes to attract global consumers.
“Introducing this policy is not a luxury,” the letter stated. “It is a proven growth strategy.”
According to Bain & Company, for every £1 spent by high-value tourists, £8 flows into the wider UK economy, with affluent international travellers spending 14 times more than the average visitor. Over half of their spending typically goes to shopping, culture, and entertainment — sectors under increasing strain from reduced international trade and falling visitor numbers.
VisitBritain forecasts that tourist spending in 2024 will remain nearly 10% below pre-pandemic levels, a worrying trend for a sector vital to the UK’s high streets and hospitality industries. Trade groups say the loss of tax-free shopping has compounded this shortfall, contributing to downsizing, weaker supply chains, and declining revenues across multiple sectors.
As chancellor, Jeremy Hunt previously commissioned a review of the scheme by the Office for Budget Responsibility (OBR). Although the review followed hundreds of calls from business leaders, Hunt opted not to reverse the decision, citing OBR estimates that scrapping the scheme would save £540 million per year by 2025-26, and reinstating it could cost up to £2 billion.
A Treasury spokesperson reiterated this stance on Thursday: “We have no plans to introduce a new tax-free shopping scheme in Great Britain. Visitors can continue to claim VAT relief where the items purchased are shipped directly to their home country as exports.”
But with British exporters under pressure from tariffs and international shoppers turning to European rivals, industry leaders believe the cost of inaction may far outweigh the savings.
As Chancellor Reeves weighs her first major economic decisions, the restoration of tax-free shopping may become an early test of her commitment to supporting UK exporters, revitalising the high street, and retaining Britain’s global retail appeal.
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Businesses urge Rachel Reeves to restore tax-free shopping as US tariffs hit UK exports
