UK’s ‘Tourist Tax’ Dilemma Drains £11.1 Billion from National Economy

A recent analysis by the Centre for Economics and Business Research (Cebr) has highlighted the economic repercussions of the UK’s contentious ‘tourist tax,’ attributing a staggering £11.1 billion decrease in the nation’s gross domestic product (GDP) to the policy.

The Cebr utilized the latest tourist statistics from the government to examine the effects of discontinuing the VAT-free shopping arrangement that was in effect until 2021.

According to the Cebr’s findings, reinstating the VAT exemption for tourists could significantly bolster the UK’s public finances, with a potential fiscal benefit of £2.5 billion. Despite a 9.3 percent increase in tourist arrivals in the third quarter of 2023, as reported by the Office for National Statistics (ONS), and a corresponding 11.2 percent rise in spending to £10.1 billion, tourism numbers have yet to reach pre-pandemic levels.

The Cebr emphasized the gap, suggesting that the full recovery of the tourism sector is still underway.

The debate over the VAT-free shopping scheme has intensified over the past year, particularly after 350 businesses, including retail giants and the British Fashion Council (BFC), rallied in an open letter to Chancellor Jeremy Hunt, urging the policy’s reversal.

These businesses argue that the absence of VAT-free shopping incentives is diverting tourists to other European destinations, negatively impacting not only retail but also the broader cultural and hospitality sectors. The collective plea underscores the broader economic implications of the ‘tourist tax’ and calls for a strategic reassessment to enhance the UK’s attractiveness to international visitors.