The heads of 11 major firms, including Italy’s Gucci and Germany’s Hugo Boss, said the proposed ban on VAT-free shopping may make the UK the least competitive tax-free regime in Europe.

In an open letter to the UK government’s chancellor Rishi Sunak, these leaders warned the ban from January would cost the country billions of pounds in lost revenue as it would trigger a major slump in tourism.

The letter said the decision will cause the UK to lose billions of revenue as international shoppers will opt for other destinations to make their luxury purchases.The introduction of a 20 per cent tax will result in these visitors opting to spend their money elsewhere in Europe, rather than in the UK.

The government’s proposal, announced in September, comes at the worst possible time for luxury firms, which are feeling the international travel ban alongside widespread store lockdowns the hardest.

In London, Harrods and Selfridges can cater for up to around 80,000 visitors a day in peak season, selling a much bigger percentage of their overall offer to visitors from abroad.

Currently, the VAT Retail Export Scheme allows international shoppers visiting Britain to reclaim the 20 per cent VAT they pay on goods purchased but not consumed in the country. The Treasury claims the rule change would bring Britain in line with other nations after Brexit, and noted the current system is costly and susceptible to fraud.

But the withdrawal of the incentive could cause tourists to reconsider where they choose to shop on their travels. That would be a major blow to UK retail, particularly among luxury stores who rely on high-spending tourists for big slice of their revenues, as well hurting major tourist hotspots across the country as well as hitting airport retail hard.