Recent Release | 22 May 2023

The Impact of Tax-Free Shopping in the UK

Economic Consulting Team

Oxford Economics

This study presents an assessment of the implications of reintroducing Tax-Free Shopping (TFS) in the UK.

The UK Government’s Autumn 2022 Growth Plan examined the potential reintroduction of tax-free shopping for non-EU27 and extending the scheme for EU27 visitors. HM Treasury estimated that implementing this scheme would incur costs to the Exchequer of £1.3 billion in 2024/25 and £2.0 billion in 2025/26, based on anticipated VAT refunds. However, these estimates did not account for the impact on visitor incentives.

To evaluate the consequences, the Association of International Retail (AIR) commissioned Oxford Economics to conduct an independent assessment.

According to our research, the actual fiscal cost of implementing tax-free shopping in the UK would be over 70% lower than HM Treasury’s estimate. This discrepancy is due to both an expected overestimation of the value of refund claims and the failure to consider the policy’s influence on visitor behaviour.

Our modelling indicates that the economic footprint supported by the additional foreign visitor spending would offer a considerable boost to the UK tourism and wider economy, sustaining over 78,000 jobs and £4.1 billion in GDP. Whilst it would be reasonable to contest that this total contribution will not be fully additional, since it will incorporate some level of displacement, the fact that it is being supported by an increase in export revenue implies that the net boost to UK GDP will be significantly higher than a policy that incentivizes UK consumer spending.

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The experts behind the research

Anubhav and Henry, members of the economic consulting team, bring years of experience in quantitative economic analysis and original, evidence-based research, working with clients around the globe and across sectors.

Henry Worthington

Director, Economic Consulting

Anubhav Mohanty

Associate Director

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