The luxury sector in the UK is urging the British government to reinstate VAT-free shopping for high-spending tourists in order to boost spending and stimulate the economy. With international visitors starting to return to the country, the absence of VAT-free shopping has hindered tourism shopping due to the higher prices of luxury goods. Trade body Walpole, along with 250 luxury brands, is calling for the revival of tax-free shopping in the UK to compete with the recovery seen in Europe. According to their tourism report, luxury tourism plays a vital role in the UK economy and requires government action. Reintroducing the VAT Retail Export Scheme (VAT RES) could generate an estimated £1.2 billion in direct retail sales and attract an additional 600,000 visitors.
The decision to end the scheme has resulted in a 38% decline in retail sales to non-EU visitors. In 2019 alone, high-end tourism in the UK was valued at £30 billion, but the country is struggling to return to pre-pandemic levels. Tourist shoppers were crucial to the success of UK luxury businesses before Covid-19, as they were able to reclaim 20% VAT on their purchases. However, the UK terminated the scheme, and shoppers can no longer buy VAT-free goods at the airport. They can only claim back VAT on items bought in the UK if the goods are shipped separately. While the government expected to generate significant VAT revenue with these new rules, the retail and luxury industries argued that shoppers would choose to shop elsewhere, resulting in reduced spending.
The Walpole report features testimonials from retailers and luxury businesses about the impact of tourism on the UK economy before the pandemic. Tourism, both domestic and international, contributed 4% to GDP and had a total value of £85 billion. Of this, £30 billion was attributed to high-end tourism, with visitors in this category spending 14 times more than the average visitor. Walpole highlights that every £1 spent by high-end accommodation guests in the UK generates £8 of value in other industries, including luxury retail, and supports 160,000 jobs in the UK luxury sector.
According to Walpole, the UK has lost its status as the preferred destination for high-spending international tourists since Brexit and the pandemic, primarily due to the government’s decision to abolish tax-free shopping. The VAT Retail Export Scheme was discontinued in 2020, making the UK the only European country that does not offer tax-free shopping to non-EU tourists. A survey conducted by HMRC prior to the scheme’s discontinuation found that 69% of international visitors were influenced by the opportunity for tax-free shopping when deciding to visit the UK. As a result, international visitors are now choosing destinations like France and Italy over the UK, leading to a decline in retail spending and loss of VAT revenue.
For instance, spending on shopping by visitors from the Gulf Cooperation Council (GCC) in the EU in Q4 2021 was at 153% of Q4 2019 levels, while in the UK it was only 60% of 2019 levels. Similarly, US visitors’ retail spend in the EU returned to 91% of pre-Covid levels, compared to just 49% in the UK. The preference for Paris and Milan over London has resulted in a loss of spending in hotels, restaurants, and cultural centers, costing the Treasury millions in lost VAT.
Walpole CEO Helen Brocklebank concludes that after a challenging period for the UK tourism industry, the country can now welcome international tourists, particularly high-end tourists who contribute to economic growth and job creation. Reinstating VAT-free shopping would attract more visitors and stimulate spending in luxury hotels, restaurants, shops, and cultural venues across the country.
Useful links:
1. UK government website
2. VisitBritain website
