The tourist tax is so last week. Scrap it to boost the UK fashion industry
Visitor numbers to London are rising, yet the tourist tax continues to quash the benefits, writes New West End Company chief executive Dee Corsi
As another London Fashion Week comes to an end – marking its 40th year celebrating London’s creative community and vibrant cultural scene – so does the global spotlight on Britain’s craftsmanship. From tomorrow, fashion followers will turn to Milan and Paris, which, respectively, follow the UK capital as hosts of the industry event.
This passing of the baton is a long tradition – but we cannot remain complacent when we observe the same passing of the baton when it comes to consumer spending. The number of international visitors to London in the six months to June 2024 rose by three per cent compared to the same period in 2019. And yet, spend in the West End – arguably the UK’s biggest retail destination and sartorial home – fell by 12 per cent.
The data shows that tourists are increasingly likely to spend in continental Europe, where they can still enjoy tax-free shopping. Already, we’re seeing a significant shift in visitor behaviour, with VAT refunds in continental Europe surging by 36 per cent in the first half of 2024 compared to the same period in 2019. These are likely to include purchases by Brits, who are now able to take advantage of tax-free shopping on the continent thanks to Brexit – a concerning leakage of already squeezed domestic spend.
The last time visitors could meaningfully enjoy VAT refunds in the UK was 2019, pre-pandemic and before the formal removal of the policy by the government from January 2021. Ever since, British businesses have been at a serious disadvantage, as the absence of the benefit effectively places a 20 per cent premium on goods purchased by international visitors to the country.
Against this backdrop, British fashion can’t afford to celebrate, despite dedicating a whole week to it. The disconnect between rising visitor numbers and falling spend has resulted in a significant “spending gap” – in the West End alone, it cost retailers £220m in the first half of 2024, and a total of £400m last year.
The impact goes far beyond West End flagships. British luxury supports over 450,000 jobs throughout the country and contributes 3.7 per cent of the UK’s GDP. Our “Made in Britain” labels rely heavily on regional manufacturing, from Mulberry’s factories in Somerset to Burberry’s hub in Yorkshire. To reflect the industry’s national footprint, the British Fashion Council has expanded its consumer-facing City Wide Celebrations programme (which runs alongside London Fashion Week) to include Manchester and Newcastle for the first time.
A shift in demand could, in that sense, have a negative knock-on effect on jobs and productivity in supply chains not just in the capital but across the nation. Additionally, the decline of the UK as a globally renowned shopping destination means fewer visitors to our restaurants, hotels and cultural attractions – all taxable experiences.
The latest figures from the Office for National Statistics showed that the UK economy stagnated for a second consecutive month in July, being held back by drops in construction and manufacturing. In this context, tax-free shopping presents a rare, golden opportunity to re-level the playing field and unlock additional growth in the UK. Reinstating the policy would make us desirable, once again, to international shoppers who have pivoted to the continent, whilst giving us access to a net new market of 450m EU residents who could shop in the UK tax-free for the first time.
The momentum is certainly there to be capitalised on. The rising number of visitors to London demonstrates the capital’s continued appeal as a world-leading destination for retail and leisure. Consequently, investors have also grown more confident in recent months – particularly in the West End. Deals on Bond Street, for instance, accounted for 91 per cent of central London’s investment volumes in the second quarter of the year. On Oxford Street, retailers who have relocated since early 2023 are not just moving, they’re upsizing, with an average increase in space of 195 per cent. And, today, there has been an acknowledgement at the highest level of the critical role that Oxford Street plays in the UK’s tourism, retail, leisure and hospitality offering through the announcement of a Mayoral Development Corporation tasked with revitalising the ‘nation’s high street’. These moves represent an important vote of confidence in the capital which will undoubtedly have a positive halo effect in the rest of the UK.
If the new government is committed to delivering growth for the UK, then it should grasp this opportunity with both hands and take tangible action towards economic success. Re-establishing tax-free shopping is an effective first step towards putting ‘Brand Britain’ on a truly competitive footing once more, and delivering a nation-wide boost for the retail sector and wider tourism ecosystem.
Dee Corsi is chief executive of the New West End Company