Under the original policy, shoppers from overseas were eligible to claim VAT refunds unless they were EU residents. Post-Brexit, the government judged it would have to be expanded to EU visitors. But tax-free shopping was scrapped in 2020.
A Treasury analysis in 2022 suggested that the policy’s reinstatement would cost £2bn in 2025/26. Yet direct costs only tell half the story.
Firstly, the average VAT refund would not be the same for EU and non-EU visitors. Global Blue, the Swiss payments company, has previously estimated the average refund for EU visitors in comparable markets can be up to 63 per cent lower.
Fresh analysis must also take account of behavioural effects — the extent to which lower trip costs might encourage more visitors and spending. In 2022, the average tourist would have saved 4.2 per cent on their total spending in the UK had the scheme existed, according to the Centre for Economics and Business Research. It suggests that this could spur a 5.4 per cent increase in overseas tourist numbers. Applied to 2022 numbers, that would mean an additional 1.7mn visitors.