Tourists would spend more if tax-free shopping is reintroduced, study finds

Four fifths (84%) of tourists have said the reintroduction of tax-free shopping would make them more likely to visit and spend money in Britain, research commissioned by the Association of International Retail has shown.

The analysis, which has been shared with the Treasury ahead of next week’s Spring Budget, saw 8,000 people from the USA, China, South Korea and across the Middle East questioned.

A third (30%) of those questioned said they consider the availability of tax-free shopping when they decide on a destination to visit.

Four in five said they used VAT refund schemes when they travelled overseas with 29% reporting that they used them frequently.

VAT refunds for overseas visitors were scrapped following a post-Brexit review of tax policy in 2021, under then chancellor Rishi Sunak. Kwasi Kwarteng had announced plans to reintroduce tax-free shopping during his short-lived tenure as chancellor in 2022, but this announcement was later reversed.

The hospitality, tourism and retail industries have campaigned for the scheme to be reintroduced with Sir Rocco Forte, owner of Rocco Forte Hotels, among those who have warned that tourists were bypassing Britain.

Shevaun Haviland, director general of the British Chambers of Commerce, said: “We are confident that the evidence shows that tax-free shopping is good for British businesses, good for the economy and good for the Treasury.

"Our members are frequently telling us about the loss of income that they have had since the damaging decision to end tax-free shopping and this survey confirms the impact to our global reputation. It was very welcome news that the OBR is reviewing the figures and the chancellor now has a huge opportunity to show that Britain is firmly open to business. I urge him to seize it and give our retail and tourism sectors the boost they urgently need."

The research also looked at the wider economic benefits of the scheme. the Association of International Retail said eight in ten tourists visiting Europe who travel for leisure (78%) and two-thirds who travel for business (65%), shop during their stay.

When travelling overseas to shop, over half (54%) stay for between four and nine days, while 16% stay for over 10 days. Three-fifths of retail tourists (56%) visit restaurants and bars more than four times, and over a third (36%) visit cultural venues like theatres more than four times.

Paul Barnes, chief executive of the Association of International Retail, said: “This study with over 8,000 people in key tourist markets for Britain backs up the wealth of real-world data we’re seeing about the impact of the tourist tax. The Treasury's original forecast that ending tax-free shopping would have little or no impact on international visitor behaviour, is not supported by the evidence.

“Tax-free shopping is a huge draw, particularly for visitors coming from China and the Gulf States, and not reinstating this policy is having a detrimental effect on retailers in the UK and on the wider economy.”