The abolition of VAT-free shopping for tourists is severely impacting British retail and hospitality, warns an influential trade body.
Caroline Rush, Chief Executive of the British Fashion Council (BFC), asserts that the so-called tourist tax is not only harming luxury retail but also affecting the entire supply chain, including tourism and hospitality.
Impact on Retail and Tourism
Since the scheme allowing international visitors to reclaim 20% VAT on purchases was scrapped in 2021 following Brexit, shoppers have been opting for other European destinations.
Businesses with a presence in London, Paris, Milan, and Spain report that international tourists prefer shopping in cities other than London.
Economic Consequences
The Office for Budget Responsibility (OBR) estimated that restoring the scheme would cost £2 billion. This was a significant factor in the decision against reinstating it in the last budget.
An analysis by the Centre for Economics and Business Research (CEBR) revealed that scrapping tax-free shopping has deterred two million tourists annually from visiting the UK, resulting in £11.1 billion in lost GDP.
Calls for Reintroduction
Caroline Rush argued that reintroducing the scheme would support the sector and revitalise retail, hospitality, and tourism, enhancing the UK’s post-Brexit image.
She said, “It would be a fantastic win.”
The British Fashion Council represents the UK fashion industry, including brands like Burberry, Mulberry, and Jimmy Choo.
Government Response
The former Chancellor, Jeremy Hunt, had ordered a review after business leaders pushed for the scheme’s return.
However, he decided against reinstating it, citing the 2020 estimates as still valid.
Broader Industry Implications
The trade body has outlined several priorities for the new Labour government.
They include reforming the business rates system and increasing trade and export investment for UK fashion designers.
Additionally, they are pushing for legislation to promote sustainable business practices to meet decarbonisation and net-zero targets.
Comparing European Destinations
While London remains a creative hub, tourists are now waiting to make their purchases in European cities like Paris, Milan, and Madrid.
London businesses are feeling the impact as tourists seek better deals elsewhere.
Reintroducing the VAT-free shopping scheme could provide a significant boost to the UK’s retail, hospitality, and tourism sectors.
The British Fashion Council’s call to action highlights the broader economic benefits and the potential for a more competitive position in the global market.