​Luxury brands weigh in to force rethink on end to VAT-free UK shopping

By

Nigel TAYLOR

Published
Nov 11, 2020

The outcry against plans to end tax-free shopping in the UK intensified this week with some of the world’s heavyweight luxury brands pressing the government to reverse its proposals.

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

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

“We were deeply troubled to hear of the UK government’s proposal to end tax-free shopping for international visitors,” reads the letter, which includes the signature of luxury group Kering’s managing director Jean-François Palus, among others.

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.

“As global brands operating in the UK, we greatly value Britain’s status as a world-leading shopping and tourism destination, attracting visitors from around the world, and have invested in the UK accordingly. But the Treasury’s plan would give the UK the least competitive duty-free regime in Europe and put this status at risk,” the letter noted.

It added: “We operate globally and understand the price sensitivity of international visitors, who have a choice where they spend their money. The introduction of a 20% tax will result in these visitors opting to spend their money elsewhere in Europe, rather than in the UK. We urge the British Chancellor to rethink this decision and ensure that Britain remains an attractive place for global brands to do business.”

The government’s plans were also attacked last month by domestic fashion brands including Paul Smith and Ted Baker and retailers like Selfridges. 

Also last month, Value Retail, the owner of popular tourist shopping destination Bicester Village, in Oxfordshire, warned of a "crippling blow” from the rule change.

The Association for International Retail has also voiced opposition to the measure through a campaign supported by the British Retail Consortium and luxury lobbying group Walpole.

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% 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.

A study claims that 90% of all overseas shoppers are less likely to spend in stores on their next visit to the UK due to the rule change, according to the Centre for Economic and Business Research (CEBR), while 60% would be put off from visiting the UK altogether. 

Britain risks losing least £6 billion in spending a year if there are fewer tourists, the CEBR said.