Looking back at 2016 for the UK’s luxury sector is not as nostalgic as the viral social media trend might suggest. This year marks the 10th anniversary of Brexit; a political moment framed around sovereignty and economic growth. In its wake, came a series of policy shifts, including the withdrawal of VAT-free shopping for overseas visitors.
For the UK’s luxury industry, the combination has dismantled its competitiveness as a global shopping destination.
Few brands have articulated the impact as clearly as Burberry. “Business in our UK home market continues to be seriously impacted by the withdrawal of VAT refunds for overseas visitors in 2021, which has made the UK the least competitive destination in Europe for tourist shopping,” the brand stated in its 2025 full-year preliminary results. More recently, in Q3 2026, Burberry noted retail sales performance remained flat in EMEIA (Europe, the Middle East, India, and Africa), with locals offsetting declines in tourist spend.
While luxury’s global challenges — from post-pandemic price hikes to shifting consumer sentiment — have been well-documented, the UK’s policy environment has added a structural disadvantage at home.
The competitive gap widens
Generating £81 billion annually for the economy, the UK luxury sector supports 454,000 jobs and could grow to £125 billion with the right support, according to Walpole, the sector body representing British luxury across fashion, beauty, automotive, and hospitality.
Roughly 70% of that £81 billion is generated through exports. The remainder comes largely from international visitors shopping in the UK. The removal of tax-free shopping, Walpole argues, has created a double hit: international customer spending has shifted toward destinations like Paris, Milan and Madrid, which actively promote VAT refunds. Meanwhile, UK consumers can now shop tax-free in the EU.
Last year, affluent international visitors spent an average of €2,680 per person on luxury retail in Paris during Couture Week Fall/Winter 2025, while ultra-high-net-worth individuals (UHNWIs) splurged around €18,350 per person, according to Global Blue. The company, which tracks tax refunds, helps retailers leverage high tourist traffic to engage affluent spenders. The figures underline how fashion moments can translate directly to retail spend in destinations that actively incentivize international shoppers through tax-free schemes.
As London Fashion Week continues to position the capital as a global creative force, industry leaders argue the UK risks missing out on a similar spending surge without the commercial pull of VAT-free shopping.
The British Fashion Council (BFC) raised the issue with the UK government just this week, and continues to press for dialogue on what it sees as a critical priority for the fashion sector. “London and the UK are leaders in the global creative conversation, this week playing host to both London Fashion Week and the Bafta Film Awards. Both events attract a significant trade audience, but more should be done to welcome international cultural consumers,” BFC CEO Laura Weir says. “During Paris Fashion Week, Paris sees an uptick of over 20% in VAT-free shopping. Introducing a competitive VAT retail export scheme in the UK would drive tourism and incentivize visitors, benefiting not only the largest luxury businesses, but the myriad of SMEs in the fashion sector.”
Paul Alger, international business director at the UK Fashion Textile Association, agrees. “The absence of a VAT refund scheme is having what I would describe as a devastating effect on high streets across the UK — and certainly not just in London,” he says. “But it’s not just international tourists that are voting with their feet. What we are seeing now is a new generation of British tourists traveling to Paris and other European cities to buy goods — and we are not seeing the reverse flow.”
Sales data cited in Walpole’s State of London Luxury 2025 report, drawing on Global Blue figures, shows the UK’s recovery in high-end visitor spending in 2024 lagged significantly behind its European peers. France, Italy and Spain were up an average of 154% compared to 2019, while the UK sat at just 79%.
The shift is visible on the ground. According to Walpole, brands have reported customers are browsing in London boutiques before booking Eurostar tickets to purchase the same pieces in Paris, where VAT can be reclaimed.
Walpole is careful not to frame the outlook as terminal. London remains highly attractive (20 luxury hotels opened between 2022 and 2027), and global demand for high-spending tourism continues to grow. But luxury pricing is relatively static worldwide. Even a modest discount can alter where shoppers allocate their budgets. “The British luxury sector has incredible growth potential,” says Walpole CEO Helen Brocklebank. “But we cannot achieve this with one arm tied behind our back.”
Compounding the issue, recent Walpole analysis suggests luxury exports to the EU are 43% lower on average than they might have been without Brexit, adding further pressure to a sector reliant on international demand.
Beyond the shop floor
The impact extends beyond flagship stores. The British Beauty Council (BBC) argues that the loss of VAT-free shopping has affected not only product sales, but hospitality and professional services, too.
“We are now the only country in Europe that doesn’t offer tax-free shopping for overseas shoppers. From that perspective, it has cut off a huge market,” says Victoria Brownlie, chief policy and sustainability officer at the BBC. “The highest-spending tourists from Asia are choosing Paris and Milan, instead of coming to the UK, because of the tax benefits they get by shopping there.”
The consequences ripple outward. Fewer high-spending visitors mean reduced theater attendance, fewer spa bookings, and lower footfall for salons and high street services. “It’s not just the physical product on the shelf — it’s the wider impact on the local economy,” adds Brownlie. “They’re not going to the theater, they’re not getting their hair and nails done, they’re not visiting our spas. The impact goes far beyond the shop floor.”
An Oxford Economics analysis in 2023 suggested reinstating VAT-free shopping could be cost-neutral or cost-beneficial to the UK Treasury; a point industry groups continue to press. Brownlie warns that the pressure is filtering into manufacturing. With losses of up to 10% of revenue for some brands, many with production hubs in the Midlands, the North of England, and Scotland are weighing workforce reductions or relocation overseas. “If you keep creating barriers where brands are losing sales, they will favor cheaper overseas manufacturing sites over UK ones,” she says.
BBC CEO Millie Kendall adds that Brexit-related export friction compounds the issue. “Given 65% of the UK’s cosmetic exports go to the EU, I would have loved to see more support in providing a timely solution,” she says. “The damage customs declarations and delays caused by administrative issues and export challenges are insurmountable. It’s really affected 95% of SMEs [small and medium-sized enterprises] in the UK beauty landscape.”
The airport effect
At Heathrow Airport, the UK’s primary international gateway, the consequences are visible in hard numbers.
According to Fraser Brown, Heathrow’s head of retail, over 98% of VAT refunds prior to Brexit were processed at the international airport. “First, we lost the opportunity to convert those refunds into further retail purchases at the airport,” he explains. “And that’s before considering the fact that our prices effectively went up overnight. We became internationally less competitive by a factor of 20%.”
Luxury consumption did not disappear — it simply moved. “If you look at financial results in 2021 and 2022, many luxury brands saw strong sales increases, or ‘revenge spend’, in European competitors like France, Italy and Spain,” says Brown.
Despite servicing 84.5 million passengers in 2025, luxury sales at Heathrow remain under pressure.
“Some core retail categories are trading OK, but there is a distinct and sustained decline in luxury,” he continues. “The downturn is material, and it is a double-digit percentage versus 2019.” The most-affected segments have been Chinese, Middle Eastern and US travelers, particularly in high-price categories such as watches, fashion, and accessories.
Investment decisions are also shifting. “We’ve lost four Mulberry stores since before the pandemic; we’ve lost half of our Rolex stores. Terminal 4 and Terminal 3 no longer have Rolex. That is not a coincidence,” Brown says. While brands remain committed to Heathrow, he acknowledges the hesitation around high-ticket categories. “For higher price point categories, there is hesitation about investing in the UK.”
Crucially, the policy disproportionately affects British brands. In travel retail, overseas consumers over-index on purchasing goods from the country they are visiting. “If you’re Mulberry, Smythson, or Burberry, a customer is less likely to buy that item in Italy, France, or Spain than they would in the UK. That means fewer trench coats produced in the UK, and fewer luxury goods made in regional manufacturing hubs.”
Retailers are responding with exclusivity, localization and experiential strategies — but Brown describes that as defensive. “That’s about mitigating rather than growing,” he adds.
The psychology of spending
For suppliers to the travel retail ecosystem, the impact is also behavioral. “Shopping is essential to drive positive sentiment to the British economy. When people come to the UK, for holidays or for business, airport or port shopping is often their first commercial touchpoint in the country,” says Dr. Sri Ram, founder of Bags of Ethics (Supreme Creations), which creates retail merchandise for duty-free operators including World Duty Free. The company is one of many signatories on Walpole’s campaign to reinstate VAT-free shopping. “What we can see is when people believe they are getting a deal — which VAT-free shopping does — they spend more, and are often inclined to feel that the country is an exciting and welcoming place to shop.”
Without that incentive, he argues, there is a “negative spillover effect” across hospitality, tourism and leisure, as well as an increased pressure on retailers and suppliers. “It places greater pressure on retailers, and their suppliers like us, where discounting becomes the focus to ‘beat the high street’, rather than developing a range of items through innovation and design,” he says.
What the industry wants
Despite the perception that reinstating tax-free shopping would mainly benefit large global luxury groups, the most powerful impact would be on UK SMEs. Large luxury houses can recover lost sales through their European stores; smaller British brands often cannot, because they lack strong store networks in markets where tax-free persists.
For a government focused on growth, the industry’s message is consistent: VAT-free shopping is not a handout, but a competitiveness lever. “Five years on, the business at Heathrow and across UK travel retail is materially smaller than it otherwise would have been,” says Brown.
The broader question, 10 years after Brexit, is whether Britain can afford to forgo a proven tool used by its closest competitors, or whether reclaiming international luxury spend is now central to its growth strategy.
