The end of tax-free shopping for international tourists in the UK has turned a “Brexit opportunity into a Brexit calamity”, according to a Labour MP.
The VAT retail export scheme, which allows overseas visitors to obtain refunds on goods bought in Britain, was withdrawn in January 2021.
Retail bosses told MPs on the Digital, Culture, Media and Sport committee how important shopping was to the visitor economy – but the recovery from Covid was being hampered by government policies, particularly the end of tax-free shopping.
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Paul Barnes, chief executive of the Association of International Retail (AIR), said many high-spending visitors from the Gulf and Far East were now choosing to visit EU destinations instead of the UK as they could buy items at a discount of about 20%.
Kevin Brennan, Labour MP for Cardiff West, commented: “What was supposed to be Brexit opportunity turns out to be a Brexit calamity.”
Barnes said almost half (46%) of international visitor expenditure in the UK is on shopping and it totalled more than £7 billion in 2019.
The West End in London attracts about 50 million visits a year, while top attractions such as the British Museum received about 5.8 million before Covid, he added.
However, VAT refund specialist Global Blue said spending by Americans in Europe was back to 91% of 2019 levels in the final quarter of 2021, but only 49% in the UK.
For visitors from the Gulf states, spending was at 153% of 2019 levels, but only 60% in the UK.
“The UK is lagging severely behind, particularly our European competitor countries,” he said.
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He gave the example of a visitor from the Middle East who picked out £60,000 worth of suits and was told at the counter that tax-free shopping was no longer available.
The shopper went to Paris to buy the same suits from the same brand, with a tax-free discount, then brought them back to the UK for tailoring and fitting.
Barnes said the treasury’s main reason for ending tax-free shopping was because of what it perceived as the cost of extending it to EU visitors once the UK had left the EU – but Barnes does not believe the government’s figures are correct.
He also said tax-free shopping perks could have been used by regional airport marketing campaigns to attract visitors.
Ross Baker, chief commercial officer at Heathrow, said the total spending by international visitors in 2019 was £17 billion, but this is now “at risk” as the UK cannot offer “a competitive proposition on retail”.
He said the treasury assumptions about the impact of tax-free shopping were “massively flawed” and had not taken into account the wider effects of the policy.
Fixing the problem of retail, and the cost of visas, would give the UK a “huge competitive advantage”, he advised the committee.
Later in the same hearing about inbound tourism, bosses from UKinbound, UKHospitality and the Tourism Alliance told MPs that a coherent strategy was needed to tackle problems such as the cost of Air Passenger Duty and VAT – and to recognise the true value of tourism to the British economy.
Picture: Bicester Village in Oxfordshire is popular with international visitors. Photograph by Club4traveler/Shutterstock.com