No business owner in Britain is celebrating the imposition of an immediate 10% tariff on all goods exported to the United States, but with global trade and taxation rules being rewritten by the administration of President Trump, a window of opportunity has opened up for the UK government to restore VAT rebates for oversees visitors shopping in the country.
The so-called tourist tax is costing the UK £10.7 billion in lost GDP and deterring two million tourists per year, according to a 2023 study by the respected Centre for Economics and Business Research.
VAT rules were sacrificed in Prime Minister Boris Johnson’s Brexit agreement, and mean that goods bought by tourists from American and around the world to the UK forgo the 20% rebate that is still available to shoppers in other European cities like Paris and Milan.
Subsequent administrations have kept the tourist tax in place, arguing that maintaining the tax break for wealthy tourists was a net loss to the Treasury.
Making a case to restore the rebate for millionaire visitors from Russia, the Middle East and United States would be politically challenging during the current cost of living squeeze for ordinary British citizens.
However, the Sir Kier Starmer government has said that nothing is off the table in its negotiations for exemptions for Trump’s tariffs.
Offering to restore VAT rebates for Americans (and others) would make a barely noticeable change to the arithmetic of high stakes tariff negotiations, but it could be totemic of Britain’s willingness to remove taxes that impact its friends from over the Pond.
Charlie Pragnell, managing director of Pragnell, a Rolex- and Patek Philippe-anchored jeweler that generated sales of £94 million (around $120 million) from four stores in 2024, says the the recent tariff imposed upon UK exports to the US presents the country with a “golden opportunity”.
“The benefit of removing our own version of a global ‘tariff’ has just multiplied. If we reintroduce the VAT refund scheme for tourists (discontinued on January 31 2021) we will regain the estimated £10 billion of cash per year estimated to have been diverted to Europe who allow this, remove the incentive for UK residents to spend further billions in Europe and encourage Europeans to shop with us. Furthermore and possibly most importantly, we would now attract far more American consumers to buy goods and services here,” he argues.
At a time when the government is casting-around for ideas that will jump-start the stalled economy, signing-away the tourist tax as part of broader tariff negotiations is a win-win, Mr Pragnell suggests.
“There seems to be an open goal for our current government to grow the economy and, consequently, the much needed tax revenue for the treasury,” he concludes.