A future Conservative government will restore VAT refunds for overseas visitors in an attempt to lure high-spending tourists back to Britain’s struggling high streets.
London has been hit by a drop in spending, particularly among wealthy shoppers from the Arabian Gulf since the tax was imposed in the UK in 2021, unlike other major European cities popular with shoppers and tourists, such as Paris and Milan.
Conservative leader Kemi Badenoch will this week pledge tax-free shopping for eligible visitors from outside the European Union, with an extension by the end of the next parliament if it demonstrably delivers a net benefit.
“Britain should be the place where the whole world comes to shop,” Ms Badenoch said. “We have iconic retailers, inventive designers and brilliant manufacturers, but they are being let down by a tax policy that is chasing their customers away.”
VisitBritain estimates that overseas visitor numbers in 2024 remained 1.3 per cent below 2019 pre-pandemic levels. More significantly, real visitor expenditure was 8.7 per cent lower, while average spending per visit fell from £848 ($1,135) to £786.
The Centre for Economics and Business Research (CEBR) has estimated that restoring tax-free shopping could generate £4.1 billion in additional spending and attract 2.35 million extra visitors a year. The scheme could also boost gross VAT by as much as £11.5 billion and support more than 150,000 jobs.
CEBR also estimates that every £1 of VAT refunded could generate a further £1.56 in other tax revenue. The Conservatives say the estimated annual £540 million cost would be partly offset by a crackdown on so-called NHS tourism – when non-residents travel to the UK to access free National Health Service hospital services or prescribed medicine – and more consistent charging of overseas patients who are not entitled to free treatment.
The proposal has also won backing from major retailers and tourism businesses. “This is a policy that has been crying out to be reversed,” said Sir Rocco Forte, chairman of Rocco Forte Hotels. “Britain is the only major shopping destination in Europe that denies international visitors a tax refund.”
Ros Morgan, chief executive of the Heart of London Business Alliance, said international tourists “do not simply shop” but stay in hotels, eat in restaurants, visit attractions and use transport networks.
“When the UK becomes a less attractive destination for high-spending international visitors, the effects are felt far beyond our shopping districts,” she said.
The Conservatives contrasted their proposal with Labour’s recently announced tourist tax powers for mayoral authorities and argued that additional costs make Britain less attractive to international visitors.
