The tourist tax has cost British businesses £4 billion this summer

Businesses lost up to £4.3bn in spending this summer due to the tourist tax, according to figures published this weekend.

Bosses of companies including Kurt Geiger and Burberry have said restoring VAT-free shopping for overseas visitors could boost the economy.

Rishi Sunak abolished the benefit as chancellor in 2021.

Research suggests British businesses lost £3.8bn from EU visitors between April and July, plus another £500m from those in the US, China and the Middle East, due to the tax.

Research by tax refund specialist Global Blue suggests this amounts to more than £1bn in lost VAT and other revenue to the public purse, at a time when Labour is seeking to raise taxes.

Critics say travellers who would have come to the UK are shopping elsewhere because of the tax. Retailers who campaigned for the Conservatives to scrap the tax are putting pressure on the Labour government.

Had the tax been abolished, the UK would have been the only major country in Europe where 450 million EU residents could shop tax-free. Global Blue estimates they would have spent £1.9bn over the summer, plus the same in hotels, restaurants and other activities, for a total of £3.8bn. The researchers say that over the whole of 2024, British businesses would have earned a total of £10bn if EU residents had been allowed to shop tax-free.

The Conservatives refused to scrap the tax on the grounds that it would mean a loss of revenue for the Treasury as overseas shoppers would be able to reclaim the 20 per cent VAT on their purchases. But retailers argue that this loss of revenue would be more than offset by the extra spending tourists would make on hotels, transport and leisure attractions as more of them would visit the UK.

Paul Barnes, chief executive of the International Retail Association, which represents hundreds of businesses including those at Heathrow Airport and Bicester Village in Oxfordshire, said: ‘This is huge amounts of foreign money that could have been spent on British businesses across the UK.

“The Chancellor is looking for ways to promote growth and increase tax revenues. If she were to look at tax-free shopping again, she would be very pleasantly surprised.”

Neil Clifford, director of shoe and handbag chain Kurt Geiger, said the policy had “left a huge hole in the British economy”.

Clifford added: “Brexit was meant to open us up to the world and then we shut the door on ourselves.”

The Daily Mail and Mail on Sunday have been campaigning for the policy to be reversed, with the support of more than 500 businesses. Muniya Barua, deputy chief executive of BusinessLDN, which represents businesses in the capital, said: “This data is a wake-up call showing how the tourist tax is diverting spending to Paris, Madrid and Lisbon, where VAT-free shopping for tourists still exists.”

Right now, British companies are “competing with one hand tied behind their back”.

James Lambert, vice-president of Value Retail, owner of designer outlet Bicester Village, said his business had seen “evidence of a shift in tourist spending towards the capitals of Europe”.

Opponents of the tax argue that it is a brake on growth.

Rachel Reeves has said she wants to become the most “pro-growth” chancellor in UK history. And a senior retail source said they are hopeful Labour will decide scrapping the tax is a “silver bullet” for growth after seeing more data.

A Treasury spokesman said: “Following the spending audit, the Chancellor of the Exchequer has been clear that tough decisions lie ahead on spending, welfare and tax to fix the foundations of our economy and tackle the £22bn hole in the public finances left by the last government.

“Decisions on how to do this will be taken at the Budget plenary session.”