London’s luxury brands suffer tax-free shopping ‘hammer blow’

London’s luxury emporiums were up in arms after new Chancellor of the Exchequer Jeremy Hunt scrapped his predecessor’s decision to let foreign visitors claim back value-added tax.

“This short-sighted move is based on inaccurate and incomplete projections,” said Paul Barnes, head of the Association of International Retail, calling the U-turn a “hammer blow to UK tourism and the British high street.”

Hunt unveiled a series of fiscally tightening measures on Monday after previous plans from Prime Minister Liz Truss and her former Chancellor Kwasi Kwarteng relied on higher public borrowing and sent markets into a tailspin.

Kwarteng announced on Sept. 23 a VAT-free shopping program for foreign visitors to the UK, allowing tourists to obtain a full refund of the 20% tax on leaving the country. However, he was fired last week as investors continued to worry about the effects of his unfunded tax cuts.

“We are disappointed that the government has decided not to proceed with its policy to return tax free shopping, a policy which will quickly deliver growth,” said Helen Brocklebank, chief executive officer at Walpole, which represents the UK luxury industry. Walpole expected the plan to deliver at least £1.2 billion ($1.3 billion) in direct retail sales.

Prior to Kwarteng’s mini-budget, retail lobby groups had been pushing for the tax to be removed to boost footfall in prime parts of London that are still struggling from the impact of Brexit and Covid.

“It would have been a significant boost to UK manufacturing which forms part of the wider ecosystem of the sector and supports jobs across the country,” said Brocklebank at Walpole. “Walpole will work closely with the new Chancellor, first and foremost to try to secure a review of the true benefits this scheme might bring.”

Rival Cities

Well-heeled tourists may prefer boutiques in cities like Paris, Madrid and Milan instead of London as a result of VAT charges, retailers claim. Those hubs are also gaining £5 million a week from high-earning British spenders who can make cheaper purchases on the continent, Walpole said earlier this year.

The British Retail Consortium was also against Hunt’s decision to stick with VAT.

“We are disappointed by the decision on tax-free shopping for tourists, which would have helped strengthen the UK’s position as a top destination for international shoppers,” said Tom Ironside, the BRC’s director of business and regulation. 

“This decision leaves the UK as one of the only European countries not to provide a tax-free shopping scheme to encourage tourism.” – BLOOMBERG