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British Fashion Designer Warns Impact of Abolishing Tax-Free Shopping

Visitors from outside of the EU had been able to claim a refund on value-added tax (VAT) for items bought in the UK, but this will be abolished in January 2021.

British Fashion Designer Sir Paul Smith has joined leading retail expert Harper Dennis Hobbs in warning that the decision to abolish tax-free shopping for international visitors could have significant ‘unintended consequences’ for London’s luxury shopping districts and airports, putting stores and jobs at risk.

Sir Paul Smith said, “As a company we’ve faced many challenges in the past 50 years, but I never imagined that I would find myself having to withstand the triple whammy of pandemic induced national lockdowns, a potential no deal Brexit and now the plans to abolish VAT-free shopping for non-EU visitors.”

Experts from strategic retail property specialist, Harper Dennis Hobbs, have raised concerns that the cut could deter shoppers from visiting the capital and push tourists towards rival European shopping destinations.

James Ebel, CEO of Harper Dennis Hobbs, added that the central London property market would be hit particularly hard. He said, “While ending the VAT refund system is expected to increase tax revenues, the knock-on impact to retailers could be significant. London remains one of the world’s go-to cities for shoppers, but this move means that the UK would be the only country in Europe not to offer tax-free shopping.

“London’s leading shopping districts such as Soho, Knightsbridge and the West End are home to the world’s leading luxury brands who could face a substantial impact of a reduced tourism spend which has already decreased significantly by Covid-19.”

A survey of more than 4,000 international travellers by tax refund specialist Global Blue found that 62% would be less likely to visit the UK and 93% revealed they would not shop in the UK and would instead shift their spending to France and Italy.

James added that the policy could put the viability of a number of retailers’ stores in central London at risk:

“This decision will ultimately influence the amount of money that is spent in the UK and, with Brexit looming, risks giving European cities like Paris, Rome, Milan and Madrid an economic boost at our own expense with tourists spending in these cities rather than London.

“With reduced tourist spend, this brings into question how viable some stores in central London could be and this is expected to lead to store closures and job losses during what is already an extremely difficult time for the sector due to the pandemic.”

Simon Black, executive managing director of Harper Dennis Hobbs’ travel retail division, added that the move would have a significant impact on the UK’s airports. He said, “This change in policy poses a threat to central London and Heathrow in particular. The Airport Operators Association and UK Travel Retail Forum estimate that at London airports alone, the loss of the VAT exemption for airside sales could result in over £125 million in lost revenue and threaten thousands of jobs. Tax-free shopping for international travellers has become a major part of airport revenue and the policy change could place the UK’s airports at a significant disadvantage compared to their European neighbours.

“Heathrow will be hit particularly hard, handling 62% of non-EU passengers in 2019, and it is the home to many luxury retailers. Our research at Harper Dennis Hobbs found that Heathrow was the best airport for shopping in Europe and this is attributed to the fact that it can attract world-leading brands, such as Louis Vuitton and Tiffany, and can offer customer-centric pricing. Losing the ability to offer VAT-free shopping is expected to lead to a substantial sales loss for all retailers not only the luxury retailers but for the premium to high street brands such as Reiss, Ted Baker and Kurt Geiger, the decision could encourage brands and shoppers to look elsewhere.”

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