Duty-free shopping will come to an end as part of the government’s Brexit plans, which has unwelcome implications for the retail industry.

  • An end to tax-free shopping in the UK could see tourists from the Middle East, Far East and US choose mainland Europe instead
  • The decision to scap duty-free shopping will not just hit the luxury sector as “everyone benefits from tourists”
  • Retailers and airports have written to the chancellor, fearing 180,000 jobs could be on the line as a result of the decision

In September, the Treasury revealed plans to scrap tax-free shopping from December 31, shocking businesses that benefit from tourism sector – both luxury and high street retailers, as well as the wider ecosystem of hotels, restaurants and airports.

The decision means that overseas visitors are no longer able to claim back VAT on purchases Made in the UK.

It also affects beauty, fashion and accessories purchases in airports, which will no longer carry a duty-free discount for travellers. 

The change would mean that the UK is the only country in Europe not to offer a tax-free shopping scheme for tourists.

While the Treasury has argued that the existing duty-free scheme “is a costly relief, which does not benefit the whole of Britain equally, with current use largely centred in London”, businesses believe that it has not given sufficient thought to the implications on the wider economy.

While the decision was seen initially as likely to be detrimental to luxury retailers primarily, removing incentives for tourists to visit the UK could have a knock-on effect across the country and the retail industry at a time when sales and profitability are under pressure because of the coronavirus pandemic. 

Discouraging tourism

Association of International Retail chair and New West End Company chief executive Jace Tyrell says: “The chancellor has seen it all through a very narrow lens of just returning the VAT, rather than all the tax benefits they get from the wider tourism and visitor economy and our global competitiveness.

“Of course there is a tax rebate when you get your VAT back from retail, but there’s all those other billions they generate from tourists coming here. 

“We already know that, coming out of the EU, we’re at a disadvantage with our own visa requirements and we know that without having tax-free shopping Middle East, Far East and US tourists could easily choose Europe over the UK.”

Tyrell cites consumer research among 5,000 high-spending Far East tourists conducted by Global Blue, which found that 60% would not bother returning to the UK without the duty-free scheme in place. Of those that would, 93% said they wouldn’t shop here.

With countries such as Spain and France removing their minimum spend limit to reclaim VAT for visitors, the UK is losing any competitive advantage over its European counterparts.

“Introducing a 20% tax for overseas visitors will encourage them to shop elsewhere in Europe and the effect will be felt throughout the UK’s retail and wider tourist economies”

James Lambert, Value Retail

James Lambert, chair of Value Retail, which owns Bicester Village, believes that the change will discourage visitors from travelling to the UK as a whole, whether they are based in London or not.

He maintains: “Removing an incentive for tourists to visit the UK will leave us at a competitive disadvantage relative to the rest of the continent, costing jobs and tourism spend and hitting iconic British brands hardest.

“We welcome millions of guests to Bicester Village every year and we know from our experience here, and in operating villages globally, that overseas visitors want to take their purchases with them, rather than sending them home [which would entitle tax reclamation].

“Introducing a 20% tax for overseas visitors will encourage them to shop elsewhere in Europe and the effect will be felt throughout the UK’s retail and wider tourist economies.”

Regional knock-on

While the Treasury line is that the duty-free scheme is unfairly weighted towards London, evidence shows that it still has an impact in the regions because tourism supports industries across the country.

Outside London, duty-free shopping brings in £92m of retail sales and sustains 1,800 jobs in Edinburgh, £60m of sales and 1,200 jobs in Manchester, and £32m and 640 jobs in Liverpool, according to the British Retail Consortium (BRC). All those cities would be affected should the scheme be removed – and it’s not only luxury brands that would suffer.

“What a lot of businesses are saying is that it’s all the other goods tourists don’t claim on – your M&S, Boots  and Primarks – everyone benefits from tourists”

Jace Tyrell, Association of International Retail and New West End Company 

“Obviously it will directly affect luxury as they claim the tax back on those high-price items and we’re essentially overnight adding 20% to the price,” says Tyrell. 

“But what a lot of businesses are saying is that it’s all the other goods tourists don’t claim on – your M&S, Boots and Primarks – everyone benefits from tourists. 

“They might not claim the tax back on those items, but they’re certainly spending money in those businesses and the wider economy – hotels and restaurants.”

A lack of tourism will also have a knock-on effect on airports, and for many regional ones “these revenue streams from tourists are a lifeline – they’re the difference between breaking even and not,” says Tyrell.

The BRC points out that those non-luxury businesses that make large sums of money in airport sales, for example Dixons Carphone or Boots, would also suffer if tourist spend fell.

‘More damaging than Covid’

Businesses such as Marks & Spencer, Selfridges and Bicester Village, as well as the heads of airports including Heathrow and Gatwick, have signed a letter urging the chancellor to reconsider his decision. It is feared that it could put 180,000 jobs on the line. 

“This is not just a London issue – this is tourism around the entire country and the impact is compounded with our recovery from Covid,” says Tyrell.

“We’re looking at 180,000 job losses due to this, when the country is already reeling from job losses in retail and hospitality.

“Some businesses have said that it’s more damaging than Covid – it’s existential to their operations in the UK, so I really hope that the chancellor looks again.”