British ‘tourist tax’ sends tourists flocking to Paris, Milan and Madrid for tax-free shopping | trip

Thousands of tourists who used to come to Britain for duty-free shopping are now visiting shops in Paris, Milan and Madrid after Britain scrapped the incentive in the wake of Brexit.

A new analysis shows that 162,000 tourists from outside the European Union applied for VAT refunds – a sales tax – exclusively in Great Britain in 2019. A fifth of those tourists now claim discounts in other parts of the EU, where the tax break still applies.

Britain ended the tax stimulus in 2021 and has resisted strong lobbying from retailers and other companies linked to the tourism sector.

The 34,000 tourists who moved their duty-free shopping from Britain have also increased their spending from an average of €2,900 per person in 2019 to €3,800 in 2023, according to Global Blue, a Swiss-based tax rebate provider, which tracks passport numbers.

France and Italy benefit most from this and attract more than two-thirds of these travelers, while Spanish retail is also getting a boost.

“The continued lack of a duty-free system will certainly impact Selfridges’ international sales,” said Andrew Keith, CEO of the luxury British department store chain.

Political argument

Britain’s refusal to hand back tax breaks after leaving the EU is more damaging than the recent cost of living crisis, according to the New West End Company, a lobby group representing London’s tourist hotspot.

However, the British government believes its policy has strengthened public coffers and not deterred tourists. It commissioned an independent review in 2020 and again this year by the Office for Budget Responsibility, a government spending watchdog. The OBR estimated that closing the loophole would have delivered a benefit to public finances of £462m ($579m) last financial year, even taking into account the impact on tourism and spending on displaced people – rising to well over half a billion pounds in the current fiscal year.

Tourism to Britain appears to be strong. According to data from consultancy RSM UK, hotel occupancy in London surpassed pre-pandemic levels in December, while 18.5 million passengers passed through Heathrow in the first quarter of this year – a record high. The city’s famous Oxford Street is making a comeback.

With national elections due later this year, some luxury retailers have given up on any prospect of a change in direction.

“Is the Prime Minister going to stand up and say, ‘I called this all wrong’?” said Michael Ward, Managing Director of Harrods, at the World Retail Congress in Paris last month. “I highly doubt it.”

The opposition Labor party is expected to return to power and Ward said the tax cut is “not on their agenda at all.”

Other retailers still support it.

“If we want British brands to invest in jobs, stores and people, we need to entice foreign shoppers to spend money in Britain,” said Thierry Andretta, CEO of Mulberry Group. “That requires us to offer them the same tax-free policies as the rest of the world.”

The British handbag maker, which has struggled in recent years, blames a 4% year-on-year drop in UK sales in the last thirteen weeks of 2023 on a lack of VAT-free shopping.

“There is a missed opportunity,” said Paul Barnes, Chief Executive Officer of the Association of International Retail. “Visitor numbers are actually as strong as they are now in the rest of Europe, but they’re not spending – that’s the difference.”

Global Blue’s data excludes Chinese shoppers as their numbers were still less than half of pre-Covid levels. Most tourists in the data came from a group of Middle Eastern countries (33%) and the US (19%).

This story was published via wire agency without modifications to the text. Only the headline has changed.