Written submission from Association of International Retail (CHI0035)

Evidence to the Select Committee on Business and Trade

China and the UK Economy Inquiry, March 2026

The Association of International Retail (AIR)

We have confined our comments to issues raised under Section 4: The Service Sector, specifically in relation to Chinese tourism.

Encouraging more Chinese visitors and visitor spending in the UK

as a relatively risk-free economic growth sector

1. Overview

1.1              The Chinese are the world’s top tourist travellers, both in terms of spending and growth potential.  Shopping is their number one priority when travelling. 

1.2              Chinese spending was the main driver of the 60% increase in international visitor spending in the UK in the ten years to 2019.[1]

1.3         But in 2020 the government ended tax-free shopping, making Britain the only European country not offering it to non-EU visitors.  The Treasury forecast little or no impact on visitor numbers or spending, but subsequent evidence does not support this. 

1.4              Chinese visitor numbers have recovered more slowly in the UK than in EU visitor destinations. The evidence shows that ending tax-free shopping cost Britain £420 million in lost spending by Chinese visitors in 2025.[2]

1.5              The Association of International Retail (AIR) estimates that the total lost by the UK in international visitor spending in 2025 because of ending tax-free shopping was around £7bn.[3]

1.6              Growing the Chinese tourist market does carry some risks, but these are relatively minor compared with other areas, and these are significantly outweighed by the rewards to UK economic growth.

1.7               The evolution of the Chinese tourist market towards more independent travel, supported by technology and with a greater focus on experiences offers great opportunities for Britain.

1.8              AIR is an industry campaign group promoting positive policy changes to boost the level of international visitor spending in the UK.  Our board includes Heathrow Airport, Global Blue, Planet, Cadogan, Marketing Manchester, Essential Edinburgh, Value Retail and Land Securities.

2.              The Chinese are the most important global travellers

2.1              In 2012 China overtook Germany and the USA to become the world’s highest spending travellers.[4]

2.2         Outbound travel grew from 10.5 million in 2000 to nearly 150 million in 2018 and recovered to 155 million in 2025.  It is forecast to reach 228–260 million by 2030, making China the single most important long‑term growth market for global tourism.[5]

2.3         Up to 2019, Chinese visitors were the fastest‑growing visitor group in the UK. Visitor visas issued rose from 210,000 in 2012 to over 800,000 in 2019 (over 400%).[6]  Growth potential remains strong since only 9% of Chinese people had a passport in 2019, versus over 70% in the UK (and 54% average across six developed countries).

2.4              VisitBritain states that the average spend per visit by Chinese travellers is nearly twice the global average at £1,563 compared with the average of £818.  They tend to stay for average of 14 nights, twice the global average of 7 nights.[5]

2.5              The Government’s 2018 “London-Plus” strategy sought to encourage Chinese tourism across the UK. VisitBritain found that Chinese visitors are more likely to travel outside London than the average, so benefitting regional economies. The appeal of sites relating to major football clubs, music history, Shakespeare and Karl Marx as well as shopping, encourages Chinese visitors to venture beyond London.

2.6              Chinese Tourism has become important for the growth plans of cities such as Manchester and Edinburgh whose airports have introduced direct flights to and from China. The Managing Director of Marketing Manchester stated in 2018 that “the impact of the Manchester-Beijing Route has been a gamechanger.”[6]  A pre-COVID-19 Report showed benefits of the new route throughout the wider North-West and that actual benefit to the visitor economy was twice that forecast.[7] The Edinburgh Tourism Action Group’s “China Ready” initiative saw a 40% surge in Chinese visitor numbers in 2018. The same could be said of Birmingham with the recent rebranding of the Chinese Quarter renamed as Chinatown to increase visibility and attract more Chinese students and tourists.

Shopping is their number one priority

3.1              VisitBritain states that “going shopping is the number one activity which most Chinese visits will feature.”[8]

3.2              When David Cameron asked President Xi during his State Visit to the UK in 2015 "what do we have to do to encourage more Chinese tourists?", President Xi said "Build more Bicester Villages."[9]

3.3              In 2019 Chinese tourists formed 8% of all non-EU visitors to the UK but were responsible for 32% of all tax-free shopping, spending £800 million on shopping alone.[10]

4.              Britain’s decision to end tax-free shopping has deterred Chinese visitors and spending

4.1              Since Britain ended tax-free shopping in 2021, Britain has become less attractive to Chinese visitors.

4.2              Chinese visitors are highly price sensitive.  Historical data shows a direct correlation between the movement in the Exchange Rate (FX) and the amount Chinese visitors spend, suggesting a price elasticity of 3.4.  [11]  This is shown in Table 1, below.

Table 1 – Relationship between Chinese sales in store in the UK and the Exchange Rate

4.3               Ending tax-free shopping has made spending in the UK less attractive to Chinese visitors.  For example, Heathrow Airport reported in July 2023 that Chinese visitor number were back to 88% of 2019 levels but without tax-free shopping, their spending was at only 33% of 2019 levels.[12]

4.4         Most Chinese visitors to Britain are on multi-country European tours. Adding Britain often requires both UK and Schengen visas, creating a barrier that the UK’s shopping offer previously helped to offset.

4.5         Since tax-free shopping ended in 2021, Chinese visitor numbers have recovered less strongly than in competitor European destinations and spending is well below EU competitor levels. Visitors who still include Britain on their itinerary often delay shopping until they can buy tax-free in the EU.

4.6              VisitBritain states “current trends show the UK is expected to lose market share from China, with France, already the favourite destination, set to grow in importance as a destination for Chinese tourists.”[13]

4.7              Official Chinese visitor number and spending data from VisitBritain and the equivalent government tourist bodies for France, Spain and Italy[14] show how far Britain is lagging in recovery since 2019 compared with EU recovery, where tax-free shopping is available. In effect, in terms of Chinese spending recovery, Britain is performing at just 75% of that of our three EU rival destinations. These differences are shown in Table 2.

                     Table 2 – relative recovery in Chinese visitor numbers and spending levels 2025 v 2019

4.8              There are other factors that may contribute to the gap (inflation, exchange rates, routes, speed of re-opening after COVID-19, and diplomacy).  In 2025, Britain was more expensive than EU destinations as cumulative UK inflation 2019–2024 was around 28% and the pound strengthened 8.2% in 2024. In contrast, Europe saw around 20% inflation and the euro strengthened 4.2%.  But these changes are difficult to forecast ahead and to fully comprehend.  But the clear message to Chinese travellers—amplified by social media and tour operators—is that without tax-free shopping, goods in Britain are about 20% more expensive than in France, Spain and Italy regardless of FX or inflation.

4.9               If Britain had performed as well as our main EU competitors, Chinese visitors would have spent £220 million more in 2025 than in 2019 instead of spending £200m less.  This suggests that in 2025, ending tax-free shopping cost Britain an estimated £420 million in lost Chinese spending.  It will also hamper future growth opportunities as Britain is seen by Chinese shoppers as less attractive than France, Spain and Italy.

5. Evidence of actual visitor numbers and spending levels do not support 2020 forecasts – and it’s not just China

5.1              The Conservative government’s 2020 forecasts predicted “little or no impact on visitor numbers or spending levels” either from ending tax-free shopping for non-EU international visitors or from extending it to EU visitors.[15]  The evidence of spending by non-EU international travellers, for example by Chinese visitors, does not support this, as shown in Table 2, above.

5.2         AIR estimates Britain lost £2bn of non-EU international shopper spending in 2025, diverted to France, Spain and Italy.[18]  By ending tax-free shopping for non-EU visitors in 2021—instead of extending it to EU visitors—Britain also lost the chance to become the only European country where 450 million EU residents could shop tax-free post-Brexit, missing a multi‑billion‑pound annual boost for high street businesses.

5.3              Since 2021, British travellers can shop tax-free in the EU.  In 2025, this newly created shopping-led tourism market for British tax-free shoppers in the EU saw an estimated additional £5bn of spending by British visitors in the EU, generating around £800m in additional VAT for EU states.[16]

5.4              The EU population is 6.8 times that of Britain. This suggests that reciprocating and introducing a new shopping-led EU market for British businesses would generate additional foreign spending in British high street businesses worth multiples of the £5bn spent by British shoppers in the EU.  Far from being a cost to the Exchequer, the additional spending on hotels, restaurants, travel, etc would produce a net benefit of billions of pounds in additional VAT alone.

6.              Risks

6.1              Tourism is arguably the economic sector with the least level of security concerns and risks for Britain.  What little risk there may be needs to be balanced against both the economic and soft power benefits of Britain’s historic, cultural, sporting and media attractions. 

6.2              While it is true that overreliance on one particular market can carry risks, Britain is a long way from overreliance on Chinese visitors.  In 2019, at its peak, Chinese tourists accounted for just 2% of all international visitors to the UK and 4% of non-EU visitors. 

6.3              As the Chinese global tourist market continues to grow, AIR believes that the bigger risk is losing out on significant international spending to France, Spain and Italy.

7.              AIR’s Key Recommendation

7.1              The full impact of tax-free shopping (EU and non-EU), and the mass of data now available, have never been reviewed, either by HM Treasury or the OBR.  The latest evidence of the impact on Chinese visitor numbers and spending levels has not been reviewed, and any review has not examined Britain’s performance relative to our main three EU competitor destinations.

7.2         The Government’s forthcoming National Visitor Economy Growth Strategy aims to grow international visitors from 40 million in 2025 to 50 million by 2030. This target is unlikely to be achieved without reintroducing tax-free shopping to attract additional international visitors, including Chinese. The Strategy should therefore include a review of the evidence now available on impacts on visitor numbers and spending.

7.3               AIR recommends that “The forthcoming National Visitor Economy Growth Strategy, due to be published by the DCMS this Spring, should be the opportunity for this Government to commit to reviewing the full impact of a tax-free shopping scheme for all international visitors to the UK, especially those from China, and reveal its true economic growth potential.”

8.                      Good news for the future as the Chinese tourist market is evolving to Britain’s strengths

8.1        Reviewing the impact of tax-free shopping on Chinese traveller behaviour remains the key policy priority. This matters more as this high‑value market is evolving quickly, creating opportunities for economic and job growth across the UK.

The visa barrier

8.2              The need to apply for two visas to add Britain to a multi-country tour of otherwise Schengen member countries creates a barrier which results in Britain welcoming significantly fewer Chinese visitors than the major Schengen members, as shown in Table 2.  A 2016 report by the UK China Visa Alliance, the predecessor of AIR, identified the problem to be the need to apply in person for two different visas at different times and different places which was a deterrent.  It is easier to leave Britain off the itinerary. A series of practical measures recommended by UKCVA and adopted by the Home Office streamlined the two systems and led to a fourfold increase in UK visitor visas being issued in China by 2019, up from 200,000 in 2012 to over 800,000 in 2019.

8.3              The introduction of the Electronic Travel Authorisation is a big opportunity to streamline the system even further and encourage more tours to include Britain on their itineraries.

8.4              AIR recommends that the Home Office prioritise China as the next market, after the GCC states, to seek to replace visas with the ETA. While appreciating the political sensitivities, this would produce a further boost to Chinese tourist numbers.

The new FIT opportunity

8.5        The modern Chinese outbound tourism market is relatively new. Early travellers often relied on organised, state-approved multi-country European tours, which provided a structured first trip despite language and cultural barriers.

8.6              Post-COVID, a second generation is emerging comprising two elements. First, more experienced travellers are now on their second or third trip and are more independent. Younger travellers are more independent and use tools such as Ctrip, Little Red Book and Douyin to plan trips and navigate language barriers. The Free Independent Traveller (FIT) segment is growing, alongside smaller bespoke tours for family and friends.

8.7         FIT travellers also have different priorities from their parents. Shopping remains important alongside experiences such as culture, history, themed interests (music, film, football), dining and hotels, often in trips that are geographically narrower but deeper in scope.

8.8              Italy has shown how to benefit from this evolving market. In 2023 it decided to move away from the large tour market and instead focused on attracting these newer, more independent, higher spending groups of Chinese travellers.  It led this move by changing its tax-free shopping scheme to attract this different market, supported by the latest electronic payment and shopping assistance.  It used Italy's authentic appeal to encourage exploration of its regions beyond the usual crowded tourist hotspots.

8.9         Establishing itself as Europe’s number one destination for the Chinese elite independent traveller gave a significant boost to Italy’s tourism sector.  While Chinese visitor numbers fell from around 6 million in 2019 to 5.5 million in 2025, spending per head rose from €1,200 in 2019 to €2,100 in 2025. Total spending rose from €4.4bn in 2019 to €11.7bn in 2025, a staggering 166% rise. In Britain, Chinese visitor spending fell by 12%. Importantly, this spending was distributed away from Rome and Milan to regional centres across the whole country.[17]

8.10              This shift in Chinese visitor behaviour is good news for Britain, which is perfectly positioned to benefit from these emerging new travel preferences. The FIT generation focussing on one country don’t face the prospect of having to apply for two visas.  Britain has a wealth of attractive experiences which many Chinese travellers are very aware of because of Britain’s exceptional soft power draw, particularly our media, music and sporting outputs.[18]  And our regions are varied, accessible and welcoming.

8.11      VisitBritain is fully aware of this potential and is delivering a professional and effective series of campaigns in China, partnering with regional bodies and the private sector to maximise impact. In January, its Chief Executive, accompanying the Prime Minister and Business Secretary to China, announced ambitious 20% annual growth targets for Chinese visitor numbers to 2030 based on this next generation of travellers. Despite having its annual budget cut to around half that of the French, Spanish and Italian equivalents, VisitBritain is doing an excellent job in leveraging all the available resources to promote Britain as effectively as possible in China.

8.12      However, ending tax-free shopping created a structural barrier to growth in Chinese (and other) tourism, hampering VisitBritain and the wider tourism and hospitality sectors. AIR therefore recommends the Government review the evidence now available on the real impacts of tax-free shopping so future policy is evidence-based.

Paul Barnes

Chief Executive

Association of International Retail

www.internationalretail.co.uk

April 2026