The British Finance Minister Rishi Sunak is under mounting pressure from major retailers to reverse his decision to abolish duty-free shopping next year which they claim will lead to significant job losses.
Leading U.K. fashion and luxury brands, including Paul Smith, Ted Baker, The White Company and Superdry, have warned Sunak that the abolition of tax-free shopping for international visitors will cause a slump in tourism spending in a sector already battered by the Covid-19 pandemic and facing the prospect of a no-deal Brexit.
In an open letter, the heads of 16 British brands said that removing the value-added tax (VAT) incentive will be a “hammer blow for the British fashion industry, at a time when it can ill afford it.”
They pointed out that the move will make the U.K. the least attractive shopping destination in Europe, leading to international shoppers choosing to spend their money in EU destinations where tax-free purchases are still available.
The group added that the decision has been taken “at the very time we were told Brexit would give British businesses a competitive advantage.”
“Pulling up the drawbridge to tourists is no way to achieve a Global Britain. Britain’s fashion brands need our country to be open for business,” the letter stated.
Under the changes that will take effect on Jan. 1, visitors from outside the EU will no longer be able to claim VAT refunds for goods such as perfume, clothing and electronics bought at shops. British holidaymakers traveling outside the bloc will also lose tax relief. The British Treasury claims the rule change will save £1 billion (€1.10bn - $1.29bn). But, the letter’s signatories state that, rather than raise tax revenue, the move “will fail to benefit the government’s coffers.”
The appeal from retailers comes alongside a warning from the British parliament’s powerful cross-party Treasury select committee, which has also written to Sunak asking for a cost analysis of the decision, which was announced last month. The committee’s chairman, Mel Stride, said there had been a lack of consultation about the change.
Stride added that ending both the VAT scheme and a concession allowing goods to be purchased VAT-free in airside shops, “may cause very significant financial loss to retailers serving the tourism sector, particularly at a time when they are already suffering considerable stress due to the impact of Covid-19.”
“The committee has been told that this will be a major blow to many retailers serving the struggling tourism sector. It could be seen as the UK imposing a tariff on its own exports,” he said.
About £28.4 billion (€31.1bn - $36.6bn) was spent by overseas tourists last year with £2.5 billion (€2.7bn - $3.2bn) reclaimed as tax-free shopping, according to the UK’s Centre for Economics and Business Research (CEBR).
The VAT rebate cost the Treasury £521 million (€570m - $673m ) last year, but retail groups have said that scrapping duty-free shopping could lead to a £3.5 billion (€3.8bn - $4.5bn) loss in revenue for businesses and reduce tax receipts by up to £680 million (€744m- $879m).
The CEBR warns that between 27,000 and 41,000 jobs will be lost, with London taking the heaviest hit followed by Edinburgh, Manchester and Liverpool.
A separate campaign has been launched by luxury goods lobby group Walpole, which represents 270 brands, including Farfetch and the Bicester Village outlet shopping centre – a major destination for bargain-hunting tourists.
Walpole’s CEO Helen Brocklebank said that “Paris is the number one destination for affluent international travellers, with London a very close second, but we will lose that advantage on December 31 if this ruling remains in place.”