Almost five years on, I can still remember my reaction when I first read that the then Tory government was scrapping VAT-free shopping.
For a moment, I thought I was hallucinating.
During my 30 years at Ted Baker, latterly as Global Retail Director, the VAT-free scheme – which allowed non-UK tourists to reclaim 20 per cent on purchases made here – was a key driver of our business, not just in London but across the country.
Only in a parallel universe, I reasoned, would you deliberately scrap such a powerful incentive for visitors. Overnight in January 2021, this bizarre and counterproductive policy made Britain 20 per cent more expensive than our European rivals.
The consequences have been catastrophic – and not just for luxury retail.
And now we have the numbers to prove it. Last year, the Association of International Retail estimated that Britain lost around £2billion in tourist spending in 2024 alone, as visitors chose to shop in EU destinations instead, where they can still claim the rebate.
In London’s West End, international spending in 2023 was just 44 per cent of 2019 levels.
Cities such as Paris and Madrid have not only recovered since the pandemic but surged ahead, actively attracting the very shoppers we have pushed away.
Overnight in January 2021, scrapping VAT-free shopping made Britain 20 per cent more expensive than our European rivals, writes Chris Browne
I have seen this happening in real time in my industry, with the tills ringing less as tourists desert London for more welcoming European cities where they could get better value for their money. Footfall has dropped, basket sizes shrunk, and the mix of customers has shifted dramatically.
This is all at the forefront of my mind at the moment, because last week I joined the British fashion brand Jigsaw. I am energised by the challenges of the role – even if I do feel that I have one hand tied behind my back, due to the devastating conditions currently being inflicted on the retail sector under this Labour Government.
Soaring business rates, rising minimum wages, increased National Insurance contributions and a cost of living squeeze have left many leaders in my industry feeling that everything is stacked against them.
Given such bleak circumstances, the fact that Labour are maintaining this ludicrous policy, thwarting one of our few competitive advantages in the shape of the VAT rebate, looks not just misguided but absolutely absurd.
Yes, this policy may have originated under the Conservatives, but it is Labour who must answer for the refusal to reverse it in the face of all the harm it’s doing.
That certainly is the feeling among my despairing colleagues in the sector; it’s no exaggeration to say that I have not found one person among them who thinks that scrapping VAT-free shopping was ever a good idea.
In fact, many business leaders have been publicly sounding the alarm for years. Sir Paul Smith and others have called out this policy for what it is: a spectacular own goal. Mulberry’s CEO Thierry Andretta directly linked the closure of the iconic company’s Bond Street store to the decision.
While working in Saudi Arabia recently, I spoke to affluent shoppers who told me they had stopped visiting London altogether.
Tourists are deserting London for more welcoming European cities where they could get better value for their money
If they want to splash the cash, they said, they go to Paris or Rome. Why wouldn’t they? They may have bulging bank accounts, but no one wants to spend more money than they need to.
Here’s the point that our political masters seem to miss: not only does this impact luxury shopping, but the entire economy.
Shopping is one of the biggest drivers of global tourism – particularly for high-spending visitors from America, China, India and the Gulf. These are travellers who plan entire trips around where they can get the best value on premium goods.
Remove the incentive and you don’t just lose retail sales, but hotel bookings, restaurant covers, train journeys, theatre tickets – the entire ecosystem that depends on international visitors choosing Britain over somewhere else.
Tourists don’t just shop, but spend across hospitality, transport and culture. When that spending disappears, the impact ripples outwards. Restaurants cut staff. Suppliers lose orders. Hotels see lower occupancy. Jobs go.
To make matters worse, British shoppers can now hop on the Eurostar, buy the same goods in Europe and reclaim VAT there, meaning we are losing inbound spending while effectively encouraging our own citizens to shop abroad. It’s a double own goal.
Over time, that means fewer investments, fewer jobs and less dynamism on our high streets.
All of which makes Labour’s insistence that it is the ‘party of growth’ – a key pillar of its 2024 election pledge – ring desperately hollow.
Their argument, that the cost to the Treasury outweighs the benefit, simply does not hold. Yes, higher taxes boost revenue on paper. But if people stop coming and stop spending, the overall tax take falls. Fewer visitors means less VAT overall, less income for businesses, and ultimately less tax collected across the board.
Crucially, the Government’s calculations also ignore the wider economic benefits of tourism – the jobs supported, the supply chains sustained, the regional economies boosted.
Meanwhile, so-called ‘shop and ship’ alternatives – which involve tourists buying products in British shops, but then having to ship them home to avoid the VAT – are nothing but a poor substitute for a simple tax refund at the point of sale. One customer fairly described the process to me as ‘tortuous’.
It leads me to wonder whether policymakers fully understand how consumers actually behave. As I write, families and high-spending travellers across the world are planning their summer trips.
They are deciding where to go, where to stay and where to spend, comparing destinations and weighing up costs. Increasingly, the answer is not Britain, despite the many wonderful things we have to offer.
Reinstating VAT-free shopping would send a clear, immediate signal that Britain is open for business again. It would restore our competitiveness, bring tourists back, and inject much-needed spending into the economy.
In other words, an instant and much-needed good news story – not just for the people affected every day, but for a beleaguered Government that desperately needs one.
CHRIS BROWNE is the new retail director at Jigsaw.