High Streets Urge Government to Scrap Tourist Tax for £7 Billion Boost
Leading business groups are calling on the Prime Minister to reinstate a VAT-free shopping scheme for international visitors, arguing it could inject a staggering £7 billion into the UK’s struggling high streets annually. This move, they contend, would not only revitalise retail but also create an estimated 140,000 jobs.
The plea comes from a coalition of influential trade organisations, including the Heart of London Business Alliance, the Association of Town and City Management, and the Association of International Retail. In a strongly worded letter to the Prime Minister, these groups have outlined a two-pronged approach to revitalising Britain’s high streets: reinstating tax-free shopping and fundamentally overhauling the business rates system.
Reinstating Tax-Free Shopping: A Gateway to Global Shoppers
The business leaders believe that reintroducing a VAT-free shopping scheme would position the UK as Europe’s premier shopping destination for international visitors, investors, and brands across the retail and hospitality sectors. Currently, they estimate that around £2 billion is diverted from UK high streets each year to EU destinations where such schemes are in place.
“This isn’t just about recouping lost revenue; it’s about unlocking a whole new market,” stated an spokesperson for one of the associations. “If we can match the level of spending from Brits in shops, hotels, pubs, and restaurants throughout the EU last year, we could generate an additional £5 billion.”
The appeal for tax-free shopping is not a fringe movement. It has garnered support from some of the UK’s most recognisable retailers, including Harrods, Primark, Marks & Spencer, and luxury brands like Burberry and Mulberry. These businesses are witnessing firsthand how tourists are opting for destinations like Paris, Milan, and Berlin, where they can claim VAT refunds on their purchases.
Before the previous government abolished the 20 per cent refund scheme in 2021, non-EU tourists could reclaim VAT on items bought in the UK. Now, with the UK having left the EU and its customs union, residents of EU countries would be eligible for tax-free shopping alongside high-spending visitors from markets such as China and the US. This would make the UK the sole European destination offering rebates to approximately 450 million EU customers, in addition to other international tourists.
The business groups are urging the government to conduct a “full impact review of tax-free shopping.” They describe this as a “cost-free and credible demonstration of support for high streets which would be widely welcomed by businesses across the UK.”
The Broken Business Rates System: A Drag on High Streets
Beyond tax-free shopping, the business groups are also highlighting the dire state of the business rates system, labelling it as “fundamentally broken.” They estimate that a complete overhaul could provide a further £2 billion boost to high streets.
This sentiment echoes concerns raised by restaurateurs, hoteliers, and chefs who have warned that current tax policies could lead to more businesses folding and town centres becoming deserted. The recent closures of well-known brands such as River Island, Claire’s Accessories, and Poundland, along with significant job losses, underscore the urgency of the situation.
The business rates system has been a particular point of contention. Increases to the tax for the hospitality and retail sectors announced in the previous year’s Budget sparked widespread backlash. While the Chancellor offered some respite to pubs and music venues with a 15 per cent discount, other parts of the hospitality sector, including restaurants, hotels, and cafes, have been excluded, leading to fears of further business failures and job cuts.
Industry figures argue that the current system unfairly penalises brick-and-mortar businesses compared to online giants and is in desperate need of a complete re-evaluation. The existing government consultation into rates reform, they contend, is merely “focusing on incremental adjustments” when “the system is fundamentally broken and requires structural reform.”
A Proposed Solution: Online Levy for Business Rate Relief
To address these issues, the business groups have proposed a bold solution: introducing a 2 per cent levy on all online sales. This, they believe, could fund a significant reduction in business rate bills by 35 per cent. The aim is to create “a fairer, level playing field between high street and digital trading.”
Helen Dickinson, chief executive of the British Retail Consortium, welcomed the government’s recent announcement of additional neighbourhood funding. However, she stressed that while community rejuvenation is vital, the core problem of business rates remains unaddressed.
“The high street remains the centre of our communities, and the Prime Minister has spelled out the challenge of boarded up shops and gap-toothed high streets,” Dickinson stated. “This not only harms community pride but limits employment opportunities and economic growth made possible by a thriving high street.”
She concluded, “If Government wants local neighbourhoods to thrive long into the future, it must make good on their promise for meaningful reform of the broken business rates system once and for all.” The combined impact of reinstating tax-free shopping and reforming business rates, proponents argue, could be the lifeline the UK’s high streets desperately need.
