How UK tourism can take advantage of a more protectionist world

The world has been tilting away from free trade and towards protectionism for a long time.

Donald Trump’s victory and early moves in office has focused minds a lot on this issue, but the truth is that both sides of the aisle in America have been moving away from free trade for a long time now, whether it be Hilary Clinton dropping support for the trans-pacific partnership or Joe Biden ramping up tariffs on China.

This is not a piece that will argue for or against any such policy. Instead I think it is worth noting how much of an opportunity this could be for the UK tourism sector.

The problem in UK tourism

The UK tourism sector currently faces significant headwinds, particularly in the luxury retail segment. Since Brexit, the UK has lost its ability to offer VAT refunds to international visitors, putting it at a distinct disadvantage compared to EU destinations. While a tourist family of four from the United States or Asia can claim back the VAT on clothes and jewellery purchased in Paris or Milan, saving hundreds of Euros, they cannot do the same in London for the same items. This has led to a noticeable shift in luxury shopping patterns, with many high-net-worth tourists incorporating Paris or other European cities into their itineraries specifically for major purchases. The impact on UK retailers has been substantial, with some luxury stores in London reporting significant declines in international sales.

However, this challenging landscape could transform into an opportunity as global trade tensions escalate. The UK's position as an independent trading nation could allow it to position itself as a strategic intermediate market, particularly for luxury goods flowing between China and the West. As tariffs between China and the United States look set to rise, the UK could establish itself as a low-tariff hub where Chinese consumers can access American and European luxury brands without bearing the full burden of direct bilateral tariffs. This arrangement could be particularly attractive for high-end fashion, technology, and lifestyle products where brand authenticity and provenance are crucial to consumers. Funnily enough the difficulty of getting some of these Western luxury brands will add to their exclusivity and allure. And as China’s economy develops, there will be many western tourists who lust after Chinese luxury goods too.

The UK's departure from the European Union gives it greater flexibility to pursue this opportunity. Unlike the EU, which must coordinate trade policy across 27 member states, the UK can move swiftly to adjust its tariff regime and establish beneficial trading arrangements. This agility could prove crucial in a rapidly evolving global trade landscape. For instance, while the EU might take years to negotiate comprehensive trade agreements, the UK could quickly implement targeted measures to attract luxury retail traffic, such as streamlined customs procedures or specialised retail zones.

The UK built itself in part on being one of the world’s great marketplaces. It can do so again.

How Government Policy Can Support This Vision

While market forces and global trade dynamics created this opportunity, pro-growth policy will be crucial in helping the UK seize it. These steps are fundamentally about being more open, not less.

Airport taxes in the UK are among the highest in Europe, with Air Passenger Duty particularly burdensome on long-haul flights - exactly the routes that bring in high-spending tourists from Asia and the Americas. Reducing these charges would make the UK a more attractive destination and could actually increase total revenue by stimulating greater visitor numbers.

The UK's visa policy also needs modernisation. While the electronic visa waiver system for Gulf states has been successful, there's scope to extend similar arrangements to other key markets. Countries like China and India represent vast opportunities, but complex visa requirements often push their citizens to choose other destinations instead. A careful expansion of visa-free travel, coupled with robust security measures, could unlock significant tourism growth.

We in the tourism sector sound like a broken record on this, but the current stance on VAT refunds needs urgent reconsideration. The post-Brexit decision to end tax-free shopping not only impacts luxury retail but sends a broader message about the UK's openness to international visitors. Ending this bringing back VAT refunds needn’t cost much – our research suggests the uplift in tourism would more than pay for the small cost to the exchequer.

A Moment of Opportunity

The global shift toward protectionism presents the UK with a paradoxical opportunity - by becoming more open in specific, strategic ways, it can benefit from others' increasing closure. The infrastructure and reputation for being a global marketplace already exists; what's needed now is the policy framework to support it. If we grasp this opportunity with both hands, the UK could emerge as one of the world's premier destinations for international tourism and luxury retail once again.