Without VAT-free shopping, the UK to lose $1 billion annually from Chinese tourists

    The UK loses out as Chinese high-spending tourists head to France, Italy and Spain instead, where duty-free shopping still stands.
    The UK loses out as Chinese high-spending tourists head to France, Italy and Spain instead, where duty-free shopping still stands. Photo: Shutterstock
      Published   in News

    What happened

    According to a recent study by the Association for International Retail (AIR), the UK’s decision to stop tax-free shopping for tourists will lead to an estimated annual loss of around 943 million (£750 million) from Chinese tourists.

    Since abandoning the VAT-free shopping scheme, foreign tourists pay around 20 percent extra compared to previous years when the scheme was in place. AIR’s prediction of a 943 million loss is based on an older KPMG report on Chinese tourists’ price sensitivity and projected visitor decline.

    Meanwhile, high-spending Chinese consumers, who have started traveling abroad again post-pandemic, are opting for countries like Italy, France, and Spain, which still offer VAT-free shopping alongside plenty of luxury shopping destinations. The UK now remains one of the very few European countries not to offer duty-free rates to foreign tourists.

    The Jing Take

    Key luxury industry stakeholders, such as luxury veteran and Burberry CEO Jonathan Akeroyd, have publicly called upon the UK government to reverse the decision.

    Chinese tourists to the UK have grown rapidly in the past decade, pandemic aside, making for a demographic that is also among the highest spending. Many have benefited from this influx of cash. Now with many of these travelers opting to go to Paris, Florence, Milan or Madrid, other European countries are far outperforming the UK in foreign tourist spending.

    Luxury brand retailers such as Harrods, Selfridges, Liberty’s, and Bicester Village — all popular hotspots for Chinese tourists — must be feeling the pinch. What many in the industry consider to be a spectacular goal by British lawmakers has, in Ackeroyd’s opinion, put the country at a “competitive disadvantage.”

    Luxury brand retailers like Harrods are popular hotspots for Chinese tourists. Photo: Shutterstock
    Luxury brand retailers like Harrods are popular hotspots for Chinese tourists. Photo: Shutterstock

    AIR chief executive Paul Barnes warned that London could eventually resemble Venice, which draws dense tourist crowds but does not see significant spending. Barnes additionally told media: “If you want your economy to do well in the international visitor sector, you’ll really want to attract the Chinese, and one thing that attracts the Chinese is shopping.”

    On Chinese socials, the mood is clear: Netizens are put off by the duty-free tax reversal. One Weibo user @一点零一克拉 posted: “I went to Bicester Village yesterday and noticed very few Chinese shoppers.”

    WeChat user @morgan remarked, “The more stringent this policy, the poorer the economy,” and another user @愚蠢的鹰 posted, “Since there is a tax-free policy in Hainan, china, why do I need to go abroad for shopping? I won’t even bother to go to Hong Kong.”

    In late 2022, Chancellor Jeremy Hunt reversed predecessor Kwasi Kwarteng's promise of “a modern, digital, VAT-free shopping scheme.” Kwarteng’s mandate was a reversal of then-Chancellor and now-Prime Minister Rishi Sunak’s 2021 decision to abandon tourist duty-free shopping.

    The debate among British government lawmakers will continue this week, after an embarrassing few years of flip-flopping. Many in the once thriving British luxury industry have high hopes that a pro-business government might change policy to address such a multi-million-pound shortfall.

    But it’s not just sales revenues that could suffer. The alienation of tourist luxury shoppers, especially the Chinese, could also dampen future growth of the luxury and retail sectors as international and local brands revisit their UK investment plans due to declining revenue.

    Additional reporting by Mia Liang

    The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

    • The UK's cessation of tax-free shopping for tourists is predicted to result in a substantial annual financial loss of approximately US$ 1 billion, primarily from Chinese tourists.
    • Chinese tourist shoppers are now diverting to destinations that offer more attractive tax-free shopping benefits, including EU destinations like Madrid, Paris and Milan.
    • Retail and luxury industry calls for policy reversal by the likes of Burberry CEO Jonathan Akeroyd, urges government to reconsider and reverse to regain the competitive edge, as Brit brands suffer.
    • Brands both British and international will have to consider the impact of this policy when planning their strategic geographic footprint and growth, with many likely to err on the side of caution in the UK.
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