Tories’ tourist tax puts high-end stores on course for a festive washout
Hannah Boland
5 min read
Fortnum & Masons chief says he is disappointed tax-free shopping for overseas visitors wasn’t announced by the Chancellor - Jeff Moore
Within the gilded walls of luxury department store Harrods, Christmas is well under way. Festive classics blast out of the speakers, while wafts of perfume and chocolate mingle in the maze of halls. Between departments, staircases are lined with sweeping golden garlands.
But, in one of the key weeks in the run-up to Christmas, shoppers’ appetite to spend big appears subdued. Tourists browse rails of clothes and try on £700 Fendi sandals and £300 Miu Miu sunglasses, but at the tills, things are moving a little slower.
“Just because the tourists are here in the UK, it doesn’t mean they’re spending,” says Michael Ward, managing director of Harrods. “People are travelling to London during the week and enjoying it here, but then catching the Eurostar to Paris and doing all their shopping there.”
Among luxury chiefs, the frustration is palpable. This week, when the Chancellor stood up to deliver his Autumn Statement, some remained hopeful that he may have listened to their pleas to bring back tax-free shopping. However, any announcement failed to materialise.
“The fact that it wasn’t trailed before the Autumn Statement made us think that it probably wasn’t coming,” says Tom Athron, chief executive of Fortnum & Mason. “So when it wasn’t announced, it wasn’t a massive shock.”
But, Athron says he was disappointed, “because timing is everything”.
Already the evidence is piling up that tourists are visiting UK cities, but deciding against spending in Britain. Over Black Friday, central London was 13pc busier than it was last week, according to MRI Springboard figures. But retailers remain cautious over how much people are spending.
According to a recent study from the New West End Company, the number of visitors from China was almost back to pre-pandemic levels in September, down just 2pc compared with 2019. However, spending by Chinese tourists in the West End remained 60pc lower than before the pandemic hit.
At the same time, tourist spending in France and Spain, where overseas visitors can still claim back VAT on their shopping, has more than doubled in recent months. Paris has particularly ramped up measures to lure more visitors, installing tax refund kiosks at its Gare du Nord railway station.
Ward says Harrods has taken steps to protect against a spending downturn, adding more ranges of exclusive pieces. Still, he admits it is particularly hard for UK stores at the moment. “Because there is a sensitivity to pricing. Not only have we lost the overseas traveller, but all the British tourists are going to Paris to claim their VAT back.”
This is a crucial issue for British luxury brands. If a person is shopping in the UK, says Ward, “they will buy multiple times more of a product that is British-made than if they went to Paris or Milan”. Ultimately, higher sales of British luxury items will lead to more manufacturing jobs in areas such as Somerset, where Mulberry bags are produced, and rural Scotland, where Johnstons of Elgin makes its cashmere, Ward says.
The Centre for Economics and Business Research (CEBR) claims that the removal of tax-free shopping costs around £10.7bn in lost GDP. This includes a hit from UK cities missing out on the extra benefit from tourists spending on hotel rooms, restaurants and theatre tickets when they decide to go elsewhere in Europe.
The Treasury has responded by saying that restoring VAT-free shopping would cost Britain around £2bn a year at a time, thwarting moves to pay down debt.
However, in policy documents released last week, there were early signs that the Chancellor’s stance may be shifting. “The Government will continue to accept representations and consider this new information carefully, alongside broader data,” it said in notes released as part of the Autumn Statement. Insiders suggested this could be taken to mean that the Treasury would be looking again at the policy for the spring budget, although said nothing was certain.
Lights out for Savile Row? - Aaron Chown/PA Wire
Ward says it is a step in the right direction, but the key question is whether the Government agrees that tax-free shopping needs to be reinstated. “And if they do, how would they even go about doing it?” Ward says. “The old system literally couldn’t cope. It was creaking at the seams. And you’d have millions of extra Europeans who would be wanting to claim under the scheme who couldn’t previously, so we can’t go back to where we were before.”
It is an issue that, for now, appears some way down the line. As retailers find themselves in the whirlwind of the Christmas period, many will simply be hoping they can tempt tourists to spend in their stores.
“The one thing that London still has is it is seen as an international capital of the world,” says Ward. “There’s something quite special about being in London at Christmas.”
Whether this means tourists will spend their cash in the capital remains to be seen. Hunt may be revisiting tax-free shopping next spring but by then, Christmas will be a distant memory. For Ward, the risk is that leading shopping streets will simply find themselves in a “downward spiral”. “Because we can’t just say, ‘we’ll sort the problem out’,” he adds. “Government policies have got to help us.”
