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Reintroducing tax-free shopping for overseas visitors would generate £11.5 billion in additional economic output, support more than 153,000 jobs across the UK and deliver a £2.6 billion net gain to the Treasury, according to a new report from the Centre for Economics and Business Research.
The economic consultancy said restoring the VAT refund scheme for international visitors would attract up to 2.35 million more tourists to the UK each year and generate an additional £4.1 billion in spending, providing what it described as a substantial boost to growth, employment and tax revenues across the country.
The scheme was scrapped in 2021 by the Conservative government. HMRC confirmed the withdrawal of the VAT Retail Export Scheme from Great Britain with effect from 1 January 2021, alongside the end of airside tax-free shopping.
The report, commissioned by Heart of London Business Alliance, found that while international visitor numbers have broadly recovered since the Covid pandemic, visitor spending has lagged significantly behind. Overseas visits in 2024 were only 1.3 per cent below 2019 levels, but real visitor expenditure remained 8.7 per cent lower than before the pandemic. Average spending per visit fell to £786 from £848.
The Office for National Statistics estimates that overseas residents made 42.6 million visits to the UK in 2024 and spent £32.5 billion.
Had tax-free shopping been in place last year, the research showed, it would have boosted GDP by £11.5 billion. The findings build on earlier CEBR analysis, which estimated that scrapping the scheme was costing the UK around £11 billion in lost GDP and deterring about two million foreign visitors a year.
London’s West End is estimated to have lost £310 million in the first half of 2025 as a result of the scheme being axed, separate research published last year showed. The new report said the capital could gain an additional £6.3 billion in gross value added over a year, a measure of contribution to the wider economy, along with 65,500 jobs and 1.13 million visitors if tax-free shopping were reinstated.
The UK is the only major European country to have abolished the measure, leaving it exposed to rival destinations such as France and Italy, where recoveries in non-EU tourism have been stronger.
Sir Sadiq Khan, the mayor of London, said: “The decision to remove tax-free shopping by the previous government was a huge mistake.
“The government should consider using the autumn budget to reinstate tax-free shopping and make it clear to the world that London and the UK are open for business.”
The benefits would not be confined to the capital, the CEBR report said. At the upper end, Scotland could generate £1.3 billion of additional GVA over a year and almost 22,000 jobs. Wales would receive about £172 million in additional GVA and 3,300 jobs.
The regional case has been pressed by manufacturers as well as retailers. Mulberry’s chief executive has argued that restoring VAT-free shopping would put more work through British factories, including at the handbag maker’s Somerset manufacturing hub.
More than 500 leaders from some of Britain’s biggest companies, including Rocco Forte Hotels, British Airways and Marks & Spencer, have signed an open letter to John Healey urging a review in the chancellor’s autumn budget. The intervention follows earlier calls from retail, luxury and fashion trade bodies for the Treasury to reinstate the scheme.
Sir Rocco Forte, chairman of Rocco Forte Hotels, said: “The UK has become the only major shopping destination in Europe to deny international visitors a tax refund and the result is entirely predictable: tourists are choosing to spend their money elsewhere.”
A Treasury spokesperson said: “As has always been the case, the chancellor will set out decisions at fiscal events, rather than routinely commenting on rumour, speculation or proposals.”
