Europe capitalising on UK’s ‘tourism tax’ as retailers call for overhaul

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London theatres
London's West End is being hit by the lack of VAT free shopping.

International tourists are spending more in Europe than in the UK as Britain’s retail sector continues to be hamstrung by the government’s decision to scrap VAT-free shopping, members of the House of Lords warned yesterday.

The UK dropped VAT-free shopping for tourists, which has since been dubbed the tourism tax, after it officially left the EU under then Chancellor Rishi Sunak. But the retail industry has long been calling to reinstate it.

“Tourists who come to the UK at the moment are spending about the same as they did in 2019,” Baroness Elizabeth Doocey said.

“But US tourists who are going to France, Spain and Italy are spending at the rate of three times what they did in 2019… our retailers are really struggling and they need and they deserve a level playing field,” she said.

“The UK needs to clearly show it is open for businesses as other countries are capitalising on this failure,” Nicholas Trench, Earl of Clancarty, said.

Treasury Lords Minister Baroness Joanna Penn said the Treasury “continues to monitor evidence”.

“The government is a strong supporter of the UK’s tourism industry and absolutely recognises the contribution it makes to our economy,” Penn said.

As international travel returns to normal and tourism begins to pick up, many believe that its reintroduction would give the country a much needed competitive edge.

“Government should reinstate the UK’s VAT free shopping scheme for international tourists, including those from the EU, to drive spending to support not just retail but the hospitality, leisure and culture sectors too,” Tom Ironside, from the British Retail Consortium, said.

“As international travel picks up globally, it’s important that the UK is in the best position to take advantage of the increased tourism numbers,” he said.

Kate Nicholls, the chief of trade body UKHospitality, said: “We need to have a VAT regime that incentivises tourism and makes us competitive on the world stage. Currently, we have one of the highest rates of VAT on hospitality in Europe and we continue to urge government to reduce this to incentivise visits, boost businesses and restore our competitiveness.”