London Mayor Sadiq Khan has issued a direct plea to Chancellor Rachel Reeves to reintroduce tax-free shopping for international visitors, arguing the move would deliver significant gains for the public purse.
A Call to Reverse a "Mistake"
During a session of Mayor of London Questions on Thursday 15 January 2026, Khan stated it was a "mistake" for former Chancellor Rishi Sunak to scrap the VAT-free shopping scheme in 2021. He revealed he has been actively lobbying the Treasury for over four years to reverse the decision made by the previous Conservative government.
"I've been lobbying the government to reverse that," Khan told London Assembly members. He emphasised that the financial calculation should not just consider VAT revenues collected, but also the "revenues lost by tourists not staying for longer."
Synergy with the Proposed Tourist Levy
The mayor's push for VAT-free shopping came during a debate on a separate proposal: the introduction of an overnight visitor levy for tourists. Khan expressed his support for this new charge, which the council group Central London Forward estimates could raise more than £350 million annually for the capital, as reported by the Local Democracy Reporting Service (LDRS).
Khan suggested that revenues from this proposed tourist tax could be even higher if the government simultaneously brought back VAT-free shopping. He argued that the perk would encourage visitors to ditch plans to travel to rival European cities like Paris and Milan, choosing instead to stay longer and spend more in London.
Political Clash and Economic Debate
Khan's strong backing for VAT-free shopping potentially sets him on a collision course with the Labour government, marking another point of tension with Chancellor Reeves. The pair have frequently clashed on issues including transport funding, with Khan stating last year that Reeves made a "colossal mistake" by not supporting infrastructure investment like the DLR expansion.
The economic impact of the VAT-free shopping scheme remains contested. The Office for Budget Responsibility (OBR) previously concluded that ending the perk would raise hundreds of millions more for the government, even after accounting for behavioural changes. However, hospitality and retail industry officials have presented opposing figures, arguing for its wider positive impact on the UK economy.
The call has also received backing from major retailers, with luxury brand Burberry having urged Reeves to re-introduce the scheme. The freedom for mayors to introduce an overnight visitor levy has garnered support from figures across the political spectrum.
