Richard Lander: If VAT-free shopping returns it must benefit those who make London special

Richard Lander: If VAT-free shopping returns it must benefit those who make London special

On first blush, the vigorous campaign by West End businesses to restore tax-free shopping for visitors to London and the UK as a whole makes a lot of sense.

Attract tourists with lots of money and get them to spend in our posh shops for a 16.7 per cent discount (that’s the store price less 20 per cent VAT). It gets them to come here rather than going to some other major European capital or Dubai or Doha and once here they stay in hotels, eat out in fancy restaurants and so on.

Hence the campaign against the so-called “tourist tax” led by the Evening Standard. Abolished at the start of 2021 when the Brexit transition ended, the VAT refund scheme could generate £1.5 billion a year, it is authoritatively claimed. Or £3 billion, or £4.1 billion depending on who’s doing your numbers. It’s really not terribly clear.

But hang on. Let’s turn the telescope the other way around.

In essence, we’d be asking British taxpayers, already burdened by high inflation and the biggest tax take in history, to subsidise wealthy Chinese and Arabic visitors and Americans – indeed anybody now we are out of the European Union – to the tune of £1 billion a year (or £3 billion etc, etc). And we’d be subsidising them to buy Burberry handbags, Chanel perfume and Tiffany earrings – the exact same goods also on sale in Paris, Rome and Madrid.

In terms of sales, it’s a tax break that would also benefit the outlets for those uber-expensive brands in Mayfair’s luxury quarter. In other words, very little of the perceived benefit of restoring this tax break would flow beyond a small group of upscale retailers.

What is more, notwithstanding the bellyaching of well-connected lobby groups, the effect the loss of tax-free shopping having on London tourism is not clear.

“It’s obvious to anyone visiting the designer boutiques and department stores of the West End … that they’re unnaturally quiet,” thundered the Standard’s Chris Blackhurst on 17 May. Yet nine days later the paper proclaimed that “Tourism to London is bouncing back after the pandemic with 16 million overnight visits to the capital from people from overseas last year, official figures revealed.” Along with (of course) a “but the end of VAT would make things better…”.

And according to Rob Burgess, editor of frequent flyer website, the case that VAT is putting off tourists coming to London is highly dubious. “It is probably having an impact at the margins, but not hugely,” he said. “For a start, the exchange rate is clearly also a factor, and one which moves around. This impacts what tourists pay.”

Let’s rethink the whole thing.

If we are going to bring the tax break back, let’s do it in a way that benefits the people and places that make London unique: restaurants, music venues, theatres, domestic designer boutiques and so on. It seems bizarre that such a break should be restricted to retail, particularly as grand shopping parades from New Bond Street to Place Vendome and Via Veneto increasingly resemble each other.

Should we bring it back at all? Probably. Can we do it differently and better? Yes. Let’s extend the scheme to hospitality and live experiences. And in retail, restrict it to smaller shops. If the department stores keep nagging, make the perk available only for goods made in Britain, from pottery to designer clothes, rather than global luxury brands. In other words, the stuff that makes us different and benefits ordinary people, not just multinational conglomerates.

We could go further and deeper so that we get the RTWM (rich tourists with money) out of the West End and into parts of London they might not otherwise visit. It shouldn’t be rocket science to develop an app that works only in certain places and certain boroughs, like the American Express Shop Small scheme that pops up a couple of times a year.

Let’s get the RTWM out to Farringdon to eat at Henry Harris’s magnificent Bouchon Racine and down to Brixton to Robin Gill’s beyond cool Bottle & Rye wine bar (see photo), both of which knock spots off their tired equivalents in Paris. Then send them east to Shoreditch for Brian Hannon’s Smoking Goat/Brat fire and flames combo, the best of their type outside the Basque country.

All three places are what London eating is really about. They deserve our support so much more than the luxury emporiums of the West End.

Richard Lander is director, Citywire Engage. Follow Richard on Twitter.

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Categories: Comment

1 Comment

  1. On your point about burdening the British taxpayer with subsidising wealthy visitors to the tune of £1 billion or more I have to correct you. These figures refer to sales in-store (incl. VAT) spent by eligible tourists per year. Add to this that shopping made by international visitors comes to approx. 11% of total spend.

    This means a further 89% is spent on accommodation, meals, transportation, attractions, etc, with the wider effect of generating revenues and employment in these sectors. Just to note that the average international visitor spend between 3-5 times more than domestic ones, and not just on luxury brands.

    As you can see bringing back tax-free shopping would stimulate a great deal more than currently understood.

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