UK Does Another U-Turn On Duty-Free Shopping In Blow To Retail Sector

    Changes to the UK’s VAT-free policy have sent the industry into a tailspin — and will make London less attractive for Chinese tourists when they return.
    Changes to the UK’s VAT-free policy have sent the industry into a tailspin — and will make London less attractive for Chinese tourists when they return. Photo: Shutterstock
      Published   in News

    Another blow has been dealt to the UK’s flagging retail market — already battered by the last two years’ pandemic restrictions and absence of Chinese tourists. Newly appointed chancellor Jeremy Hunt announced yesterday that he would be canceling duty-free shopping for international visitors, a U-turn on previous incumbent Kwasi Kwarteng’s pledge to reinstate VAT-exempt shopping for tourists (as recently as September 23). This means that the UK will remain one of the very few countries in Europe not to offer duty-free rates to foreign travelers.

    This has major implications for luxury houses and the likes of Harrods, Selfridges, Liberty’s, and Bicester Village, which are all popular hotspots for foreign tourists — particularly the Chinese, who love to shop in the UK. In pre-pandemic 2019, international visitors contributed over £28 billion to the UK economy, a figure that has risen 62 percent in the past 10 years. Now the likes of London will find it harder to compete with other European shopping havens like Paris and Milan.

    With the country’s political scene a veritable merry-go-round of late, the industry has suffered. Prime Minister Boris Johnson was forced to resign early this September following the resignations of his cabinet; among the first of these was chancellor Rishi Sunak, who dramatically ended decades of duty-free shopping for international visitors in the UK at the end of 2020. After Sunak lost out to the current premier Liz Truss in the contest for Britain’s top political job, Truss appointed Kwarteng to Number 11 on September 6.

    Kwarteng’s first “mini-budget” saw him outline several contentious tax policies that led to a drastic drop in the pound, market skittishness, and eventually, the end of his brief ministerial tenure. However, by reintroducing duty-free shopping for foreigners on UK shores, his reversal of the Sunak policy delighted the retail and luxury sectors. It was a much-needed boost amid the country’s tourist and retail sector slump. He was in part responding to a campaign led by stakeholders such as the Walpole Group, New West End Company, and the Association of International Retail. But now that’s all undone.

    For brands and retailers, it’s been a dizzying chain of events. Comments from industry leaders have already emerged in a number of British publications. “This short-sighted move is based on inaccurate and incomplete projections,” said Paul Barnes, head of the Association of International Retail, as reported in The National News. Helen Brocklebank, chief executive at Walpole, iterated in the same publication, “we are disappointed that the government has decided not to proceed with its policy to return tax-free shopping, a policy which will quickly deliver growth.”

    Those in the fashion, luxury, and jewelry sectors will feel the pinch especially. Major high streets in Britain’s big cities, retailers like Bicester Village (famously the second most popular British attraction for visiting mainlanders after Buckingham Palace), and London’s luxury stores will all be hurt by this. Hunt’s U-turn has incensed many. It has made the UK less desirable to China’s luxury-loving tourists, who might now find splashing the cash in Paris or Milan more appealing.

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