According to a recent data analysis, Britain has lost out on international visitors who spend a lot of money after the government removed tax-free shopping as a result of its exit from the EU.
The UK has seen a dramatic drop in non-EU expenditure since the scheme was scrapped in 2021 following Brexit. This makes the country an anomaly amongst other major European economies that have experienced a rebound in spending since the pandemic.
The analysis found that non-EU visitors to Britain spent more in 2021, an average of £1,612 per person, compared to £1,036 per capita in 2020. This was after the Covid-19 travel restrictions had been lifted and international flights resumed.
In 2022, however, as the number of visitors approached the pre-pandemic level, the figure dropped to £1,346 – or 17 percent – and continued a downward trend through the first half of 2023.
In contrast, in Italy and Spain tourists are eager to return to high streets, with international spending increasing over the period. In France, the levels were flat in 2022 and then climbed last year.
Paul Barnes, CEO of the Association of International Retail Retail lobby (AIR), said: “It’s clear that we’re losing out on all of the extra spending that other European destinations get.”
He added that “the government’s decision hit British businesses and heritage brands, in particular, extremely hard — as well our hospitality.”
Retailers confirmed that the findings confirm fears of a policy reversal that would lead to revenue loss and halt the UK’s growth.
The industry has been pressing the Treasury to extend tax-free shopping to EU visitors and reinstate it. They argue that there is a strong incentive to do so.
According to a report published by AIR in November last year, the UK lost up to £1.5bn as tourists instead headed to France Italy and Spain in 2022.
Tax-free Shopping is a system whereby goods purchased but not consumed within the country of purchase, are sold at a VAT-free price. You can claim the VAT as a reimbursement.
The government ended tax-free shopping in high streets and airports on January 1, 2021. This left outlets vulnerable to losses. Some outlets have used their profits to offer specials that will encourage visitors to return.
The World Duty Free shop in London Heathrow Airport sells luxury cosmetics and fragrances at an “airport-price” that is cheaper than the price on the high street.
The UK’s largest airport has tried to recreate a tax-free experience for its passengers, but since the removal of the scheme, the retail revenue per passenger is down sharply.
The airport reported that the average amount spent per passenger in the first nine-month period of 2023 was £8,65, a 7 percent decrease from the same period last year. The airport reported that the average spend per passenger was £8.65, down 7 percent from 2022.
Fraser Brown, Heathrow’s retail director, said that even if the company managed to lower the prices of products to provide a great value for the consumer, the negative feelings among consumers who were aware of the new policy had created confusion on the market. This is affecting sales.
Non-EU tourists in London are responding by hopping on the Eurostar to Paris and buying luxury goods. Diane Coletta Marz, a New York luxury fashion writer who lives in New York, bought a Lady Dior handbag worth over €5,000, of which 12 percent was refunded, during her last trip to Europe.
It’s worth the train fare and a few extra hours of travel, given the price difference. Since [the UK] has eliminated the tax refund it is a no brainer to travel in order to purchase these items,” she said.
Global Blue, an international payments company from Switzerland, released a report that found the amount of money spent by US consumers in Britain by 2022 would be 1 percent higher than it was in 2019. This research was based upon a sample of eleven major brands.
The figure increased up to 126 percent in France, 101% in Spain and 90% in Italy.
The data suggests that the tax-free benefit used to be one of the main drivers for tourists to spend money in Britain.
In 2019, 1.2mn non EU visitors used the scheme in the UK – 8 per cent. This resulted in tax refunds of £500mn. This equated to sales of £3bn and accounted for 17 percent of the total non-EU visitors expenditure in that year. The rest was derived from tax-inclusive retail, hotel stays, restaurant meals, and other services.
The government claimed that the program was “a costly one to maintain” and expressed concern about the planned expansion of benefits to all EU tourists.
Britons who travel to the EU can now shop tax-free.
In September 2022 the government calculated that refunding tax-exempt goods and expanding the program to include EU visitors would cost £2bn per year by 2025. The industry disputes this figure.
Former chancellor Kwasi Kwarteng announced that he would reintroduce the “mini” Budget in 2022. However, his successor Jeremy Hunt reversed this decision.
Derrick Hardman is Global Blue’s managing Director for Finland, UK, and Ireland. He said that Treasury made a fundamental mistake by assuming the withdrawal of the scheme wouldn’t have any impact on the consumer’s behaviour.
A spokesperson for the Treasury said: “We constantly review all taxes and recognize the value retailers bring to Britain.”