UK retailers urge Reeves to revive tax-free shopping

UK retailers are urging Chancellor of the Exchequer Rachel Reeves to reinstate tax-free shopping for tourists as part of wider efforts to strengthen the ‘visitor’ economy. 

The Association of International Retail estimates reinstating VAT-free shopping could have EU tourists spend an additional £3.65 billion, roughly $4.9 billion. This would be in addition to the £1.5 billion, about $1.75 billion in non-EU visitor spending lost when the UK ended tax-free shopping in 2021. 

With the UK’s EU withdrawal from Brexit, former Chancellor Rishi Sunak discontinued the tourist VAT refund system. Thereafter, all subsequent Conservative and Labour governments, except Liz Truss’s brief administration, have upheld the belief that the policy posed a greater fiscal burden than benefit. 

UK visitor spending was lower than that of France and Spain

British retailers claim they’re losing business to countries such as France and Spain, which still offer tax-free shopping to non-EU tourists. They’ve also criticised the Treasury for failing to consider the wider economic stimulus a tax-free policy can generate.

Several major retailers, including Mulberry Group Plc, Fortnum & Mason Plc, and John Lewis, signed an open letter to Chancellor Rachel Reeves last year, calling on the government to reinstate tourist tax-free shopping.

However, after backing down on welfare cuts and declining growth, Reeves is contending with a fiscal deficit going into this year’s autumn budget. The fiscal strain reduces the likelihood of reconsidering her position on tax-free shopping. Having increased payroll taxes earlier this year, she is now under pressure to offer relief measures for businesses.

According to the Association of International Retail, reinstating VAT refunds would set the UK apart as the only European nation offering such rebates to the EU’s 450 million citizens. The group also revealed that while UK visitor spending was at 92% of 2019 levels, Spain and France had exceeded those levels, reaching 106% and 110% respectively.

Reeves also considers changes to import tax rules following UK retailers’ concerns.

In April, Reeves said they intend to reassess the import tax rules to stop Chinese firms from flooding online marketplaces with cheap goods that undercut UK retailers. She said the government is reviewing rules allowing goods worth £135 or less, frequently listed on platforms such as Amazon, Shein, and Temu, to bypass customs duties. Sainsbury’s and Next are some of the retailers that have raised concerns about Chinese goods.

She said, “I think that retailers can see, through the actions we’ve taken today around low-value imports, that we are absolutely standing up for the British high street against the dumping of cheap imports of products that undercut British retailers.”

Retail entrepreneurs like Theo Paphitis showed their support for the Chancellor’s remarks. He argued that retailers have been raising their concerns for a while, and the rule review is necessary to shield the country’s economy and “a strong step in the right direction by the chancellor”.

Beyond the UK, other countries are also taking steps to curb a flood of low-cost imports from Chinese retailers. In the US, new legislation has been introduced to scrap the “de minimis” rule, which currently allows shipments under $800 to bypass import taxes and regular customs checks. While originally intended to streamline e-commerce, the exemption is being rolled back in response to a surge in goods arriving from China.

Similarly, in February, the EU announced plans to phase out its own exemption on customs duties for low-value parcels.