Kemi Badenoch has pledged that a future Conservative government would restore tax-free shopping for overseas visitors, reversing a policy abolished by the previous Conservative government.
The proposal would initially bring back VAT refunds for eligible visitors from outside the European Union who buy goods in Britain and take them home.
The Conservatives would then consider extending the scheme to visitors from EU countries if evidence showed that it was paying for itself. The party said any wider rollout would be completed by the end of the next Parliament.
The announcement is a Conservative policy pledge rather than a change being made by the current Government. Existing VAT rules remain in force.
Badenoch says retailers are losing customers
Badenoch said Britain should be a destination for shoppers from around the world but argued that the present tax system was driving international customers towards competing European cities.
She said: “Britain should be the place where the whole world comes to shop.
“We have iconic retailers, inventive designers and brilliant manufacturers, but they are being let down by a tax policy that is chasing their customers away. Holidaymakers are choosing rival cities in other countries for the simple reason that it saves them money.”
The VAT Retail Export Scheme was withdrawn in Great Britain in 2021 following the end of the Brexit transition period. It had allowed eligible international visitors to reclaim VAT on purchases taken out of the country.
Visitors can still receive VAT relief when goods bought in Britain are shipped directly to an overseas address, but the in-person refund previously available to tourists is no longer offered.
Labour calls announcement a U-turn
The policy has attracted criticism because Badenoch was serving as Exchequer Secretary to the Treasury when the previous Conservative government abolished the relief.
Labour described the announcement as a “spectacular U-turn” and challenged the Conservatives to explain why the scheme had been removed and how its restoration would be funded.
A Labour spokesperson said: “Kemi Badenoch used to say tax-free shopping was a costly giveaway and now she's trying to sell it as an economic miracle.”
Reform UK's Treasury spokesman Robert Jenrick, who served in the former Conservative government before joining Reform, also attacked Badenoch's change of position.
Jenrick said Badenoch had previously defended ending the relief and was now proposing to reverse course after what he described as years of damage to retailers and high streets.
Conservatives propose NHS charging crackdown
The Conservatives say part of the cost of restoring tax-free shopping would be offset by recovering more money owed to the NHS by overseas patients who are not entitled to free treatment.
The party has proposed more consistent charging and debt recovery, although detailed costings and an implementation timetable have not yet been published.
Supporters of tax-free shopping argue that the cost of VAT refunds would be balanced by additional spending on hotels, restaurants, transport and other goods and services.
Research published by the Centre for Economics and Business Research estimated that restoration of a fully used scheme could attract as many as 2.35 million additional visitors each year and generate £4.1 billion in extra tourism spending. Those figures are projections rather than guaranteed outcomes.
Business leaders back restoration
Business figures associated with Fortnum & Mason, Paul Smith, Claridge's and other retail and hospitality companies welcomed the proposal, describing it as supportive of economic growth and employment.
They said restoring the scheme could help Britain win back international customers who have instead chosen to shop in destinations such as Paris and Milan.
Visitor numbers have returned close to their pre-pandemic level, but real-terms spending by overseas visitors remained around eight per cent lower in 2024, according to VisitBritain estimates cited alongside the announcement.
The Treasury said international tourism continued to contribute billions of pounds to the economy and reiterated that VAT relief remains available when purchases are exported directly to a customer's home country.
Whether the wider refund scheme returns will ultimately depend on the Conservatives winning a future general election and implementing the pledge in government.