One clear trend from London Fashion Week? The tourist tax is failing retail
London’s fashion scene is envied globally, but getting rid of tax-free shopping is an own goal for our retail sector, writes Dee Corsi
London Fashion Week drew to a close yesterday, with a global spotlight once again shining on some of Britain’s most beloved brands.
For many, the West End is the UK’s sartorial home, featuring heritage brands like Burberry on Bond Street, the lauded craftsmen of Savile Row, and even innovative fast-growth start-ups like Manière de Voir, which recently made the transition from e-commerce to physical retail with a flagship store on Oxford Street.
In the West End, the fashion transcends the products themselves – it is the experience visitors flock
for, exemplified by events such as London Fashion Week. Retail is, by its nature, highly adaptable and innovative – and it is in the West End that brands invest bringing fresh concepts to market.
In Flannels X, for example, a rotating popup space situated in Flannels’ flagship store, visitors can combine luxury shopping with access to gigs, masterclasses and exhibitions. In Burberry’s refurbished global flagship, an elevated store concept expertly balances heritage with a contemporary, immersive experience. And it is fair to say that these brands are in good company; the district boasts the very best of British retail, from Belstaff to Barbour.
But while fashion houses and retailers continue to invest in the UK, they must do so in an uncompetitive environment for growth. The absence of tax-free shopping effectively places a 20 per cent premium on goods purchased in London, compared to Milan and Paris, whose boutiques still benefit from the policy.
This has already had an impact on consumer behaviour, with our latest data revealing that, in the fourth quarter of 2023, spend in the West End was down 15 per cent, despite international visitors numbers being level with the same period in 2019. The full year figures painted an even starker picture of this gap between international footfall and spend, with international visitors to the capital down just four per cent versus 2019, but spend in the West End down 19 per cent. Comparatively, in France and Spain, international visitor spending over the last twelve months has nearly tripled amongst certain nationalities since 2019.
It is also having an effect on business decision-making. A survey we conducted amongst our 600 members last year – including retail, hospitality and leisure providers – found that more West End businesses have been affected by the absence of tax-free shopping than by inflation or the cost of living crisis. As a direct result, the majority were reconsidering staffing requirements and future investment into the UK.
This doesn’t only affect London. Our British brands – renowned internationally for their craftsmanship – rely on regional manufacturing hubs, from Mulberry’s factories in Somerset to Burberry’s hub in Yorkshire. Visitors come from across the world to purchase goods with the coveted “Made in Britain” label, and a shift in this demand will impact not just West End flagships, but supply chains throughout the UK.
Against this backdrop, it is hard to overstate the opportunity that reinstating tax-free shopping would present. Reintroducing the policy would allow the UK both to recapture tourist spend which has leaked across the Channel, whilst simultaneously giving us improved access to a tourism market of 450m EU residents for the first time. Post-Brexit, the UK would boast the accolade of being the largest and closest tax-free shopping destination for these shoppers outside the bloc. What’s more, we already have the infrastructure to support this new market, with our regional airports benefitting from existing links to counterparts in the EU.
It was therefore encouraging to hear that the Office for Budget Responsibility has committed to a cost-benefit examination of the decision to remove tax-free shopping for overseas visitors. Reintroducing tax-free shopping presents the government with a golden opportunity: to inject growth back into the national economy, with a tried and tested scheme which is backed by businesses and has cross-party support.
To be a success, the scheme needs to be best in class – but we do not need to reinvent the wheel. Tax-free shopping works, and we have an opportunity to create a world-class system, whilst simultaneously providing a boost for the Treasury. We would urge the government to grab the opportunity with both hands.