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Sandra Halliday Published
March 6, 2025
The latest budget from Chancellor Jeremy Hunt has aimed to give away as much as it could ahead of what’s expected to be a general election this year, with some measures that should put more money in consumers’ pockets. But overall analysts were underwhelmed and VAT-free shopping is still off the agenda.
Hopes had been high that the VAT-free perk for tourists — which was abolished when Britain left the EU in a moved dubbed the ‘tourist tax’ — would be brought back. But government signals late last month suggested those hopes were misplaced. There was talk of the challenges involved in bringing it back and allowing EU travellers to also shop tax-free using the UK’s archaic paper-based refund system.
Yet analysis by the Centre for Economics and Business Research had concluded that it was worth investing in a new system as not only would a tourist tax repeal be affordable, but the cost of restoring the tax break would be far outweighed by the stimulus in tourist spending in other areas, including hospitality, restaurants, transport and the arts.
Industry view
Dee Corsi, chief executive at London’s New West End Company, said: “Today’s announcement is incredibly disappointing and at odds with the real-world data which has been shared by businesses, airports and regional groups across the country.
“It is concerning that, whilst our EU counterparts actively leverage tax-free shopping to supercharge growth, we are unable to see the policy’s potential – not just for retail, but for hospitality, leisure and cultural attractions across the nation.
“The Chancellor has missed yet another opportunity to inject some growth into the UK at a time when we need it most and it is British businesses, and their employees, who will feel the impact most.”
Andrew Hinds, chairman of F Hinds the jewellers, also said: “The message from business could not have been clearer that this move is desperately needed to kickstart economic growth. This goes way beyond a few luxury retailers in the West End of London – we are seeing the impact of the removal of tax-free shopping in our 127 stores in high streets up and down the country.”
And Anda Rowland, vice-chairman of the King’s tailor, Anderson & Sheppard, called it “a bitter blow to British business. Small businesses are really suffering from the fact international visitors aren’t spending. People are choosing to shop in Paris, Milan and Berlin rather than here because the VAT rebate has gone. It’s affecting not just retailers but manufacturers and artisans right down the supply chain. It clearly makes no sense that every country in the EU now offers a tax-free shopping scheme for tourists and we don’t. We’re driving tourists who would otherwise be coming here into the arms of our rivals, and the impact will be felt in retailers’ tills, jobs and ultimately economic growth.”
And Trevor Pickett, founder of luxury goods retailer Pickett, added: “I saw the impact on a trip to Paris the other day when I spent £500 in Zara – with the sales tax back, I saved £100 and got two shirts for free. Before I wouldn’t have bothered to make such a purchase but now there’s a massive financial incentive to do so. The UK must be completely mad to be forcing people to pay 20% more than they have to in the EU for the exact same goods. We have to hope that Labour realises that scrapping the tourist tax is a win-win for economic growth and the public finances and chooses to act.”
No help on business rates
But it wasn’t only the tourist tax that disappointed retailers and not only the high-end that was unhappy. Business rates remain a disproportionately large burden on UK retail and inaction on business rates reform has also upset the sector.
Helen Connolly, CEO of New Look, said: “Retail leaders across the UK will be disappointed by the Chancellor’s decision not to readjust the standard multiplier for business rates or agree to wider reform. The retail industry is unanimous in its view that the business rates system is not fit for purpose and needs fundamental reform. Our sector is the backbone of communities up and down the country, contributing significantly to the UK economy. It would be a misstep by the government to not consider making our circumstances for operating easier, otherwise they risk losing out on the long-term growth of retail.”
So what did the budget contain on the plus side? As mentioned, there were measures that could allow consumers to retain more of their money. But keeping the previous threshold at which people start to pay income tax also means inflation and wage rises have pushed more people into having to pay tax.
That said, from April 6, employees National Insurance will be cut by another 2p, from 10% to 8%. And self-employed national insurance will be cut from 8% to 6%. It means an additional £450 a year for the average employee or £350 for someone self-employed. There should also be extra money for parents with the threshold on the High Income Child Benefit Charge rising.