Rachel Reeves is under pressure to restore tax-free shopping for international visitors after new figures revealed Britain is losing billions of pounds each year to rival destinations.
Research by the Association of International Retail (AIR) and Global Blue shows that spending by non-EU visitors to the UK is stuck at just 75 per cent of pre-pandemic levels since the Conservatives axed the VAT exemption in 2021.
By contrast, continental Europe has seen record surges in tourist spending. Visitors’ outlays are up 166 per cent in Spain, 159 per cent in France and 137 per cent in Italy compared with pre-Covid levels.
The report estimates that Britain missed out on around £2bn of spending last year alone, with the steepest falls among high-spending visitors from the Gulf. Shoppers from Saudi Arabia and Kuwait spent 27 per cent less than before the pandemic, while the UK has increasingly had to rely on American tourists, where growth has lagged far behind rival European markets.
Critics warn the tax change is pushing luxury shopping and related economic benefits overseas. “The UK is shooting itself in the foot. This is economic madness,” one retail trade body said.
The figures come as some local councils are also piling pressure on visitors with proposals for their own “tourist taxes” – nightly charges on hotel and B&B stays. Cities including Oxford, Liverpool and Bournemouth are weighing up such schemes, while Aberdeen last year became the most expensive place in Europe for visitor levies after Scotland introduced new powers.
Several Scottish councils have since paused their plans after a backlash, with critics arguing the measures risk deterring the very visitors the UK economy needs.
The retail industry is now intensifying calls for Reeves to revive the VAT exemption ahead of her November Budget, arguing that restoring the perk could boost competitiveness, revive visitor spending and generate billions for the Treasury.