Mayor of London Sadiq Khan has backed calls to reintroduce tax-free shopping for overseas tourists after new economic research showed an £11.5bn boost to UK gross domestic product.
The analysis by the Centre for Economics and Business Research reveals that scrapping the so-called tourist tax would also sustain 153,000 jobs across the country and provide a £2.6bn net gain for the Treasury.
The report, commissioned by the Heart of London Business Alliance, estimates that restoring the scheme would attract up to 2.35 million additional international visitors to the UK each year.
Business leaders warn that without tax-free shopping, international visitors are choosing to spend their money in competing European destinations such as Paris, Milan, and Berlin instead of British cities.
Value Added Tax, or VAT, is a 20 per cent consumption tax applied to most goods and services in the UK. Before the government abolished the VAT Retail Export Scheme in 2021 following Britain's departure from the European Union, visitors from outside the EU could claim back tax on retail purchases, effectively making goods 20 per cent cheaper.
Although international tourist numbers coming to the UK have almost recovered to pre-pandemic levels, spending levels by overseas visitors continue to lag behind. In 2024, overseas visits were 1.3 per cent below 2019 figures, but total spending was 8.7 per cent lower, with average expenditure per visit dropping from £848 to £786.
Post-Brexit trade opportunity
Campaigners point out that reinstating the tax refunds would allow Britain to take advantage of a new market created by Brexit. If restored, the scheme would be extended to visitors from the European Union as well as non-EU countries, making Britain the only major European destination to offer VAT-free shopping to both markets.
The Heart of London Business Alliance represents hundreds of businesses across London's West End commercial district, including major retail corridors around Piccadilly, Leicester Square, and St James's. A wider campaign led by The Mail to scrap the tourist tax has won backing from more than 500 businesses nationwide, from luxury goods manufacturers to countryside tearooms.
Major commercial names supporting the policy include fashion house Giorgio Armani, drinks company Pernod Ricard, and shopping centre operator Westfield. The companies argue that the cost of providing tax refunds is heavily outweighed by the wider financial benefits of encouraging international visitors to spend in Britain.
Calls for Chancellor to review tax
Sadiq Khan, who has served as Mayor of London since 2016, joined business groups in calling on new Chancellor John Healey to announce an official review of the scheme in the upcoming Budget on 28 October.
Khan urged ministers to reinstate tax-free shopping to make it clear to the world that London and the UK is open for business. He said: "London is a globally renowned tourist destination, but the decision to remove tax-free shopping by the previous Government was a huge mistake which has led to us trailing behind other European cities on visitor spending for too long."
Khan added: "This report highlights how reintroducing tax-free shopping would entice millions more additional international visitors to the UK each year, providing a multi-billion boost to the economy, supporting thousands of jobs and generating more money for the public purse."
Ros Morgan, chief executive of the Heart of London Business Alliance, said the report provided the most compelling evidence yet to eliminate the tax. She said: "The UK's tourism sector remains one of our greatest economic assets, yet we have made ourselves less competitive than every major European rival."
Morgan added: "At a time when economic growth is rightly the Government's top priority, restoring tax-free shopping is one of the clearest pro-growth measures available."
