Decision to end tax-free shopping for visitors is hurting retailers - Roddy Smith

As Edinburgh continues its recovery from the pandemic and we welcome back international visitors, it is clear that this market is a major component of the city’s economic growth. Prior to the pandemic growth was averaging six per cent, generating £28.4 billion UK wide in 2019.

Shopping for visitors to UK destinations such as Edinburgh’s Royal Mile is now 20 per cent more expensive than in every other EU country

VisitBritain surveys consistently show that shopping is one of the top motivators for choosing to visit the UK. It is also the single biggest item of expenditure, accounting for 46 per cent of all international visitor spending in London alone. Ensuring that our city shopping offer remains globally attractive is as vitally important for Edinburgh as it is for the rest of the UK.

Unfortunately, as international travel returns the UK is now significantly less attractive as a shopping destination compared with our European neighbours, particularly France, Italy, and Spain due to the UK Government’s decision to end tax-free shopping for visitors. This has meant that shopping for visitors to the UK is now 20 per cent more expensive than in every other EU country.

Working in support of the Association of International Retail (AIR), Essential Edinburgh is campaigning for a reversal of this government policy, that clearly makes the UK a less attractive destination for international tourists, particularly the high spending visitors from the Gulf States, China, and the USA.

Roddy Smith, CEO Essential Edinburgh

When the Treasury announced the ending of tax-free shopping, they predicted that it would have negligible impact on visitor behaviour and spending. They forecast that the Treasury would make a net gain of £350 million in VAT each year. We argued that it would have a significant impact on the behaviour of high spending visitors and their reduced overall spending would result in a net loss of VAT for the government.

As the real data starts to come in, it suggests that the AIR was right, and the UK government was wrong. As just one example, Global Blue (major tax-free provider) surveyed major brands with stores in the UK and throughout the EU. They compared total sales made to key markets in Q4 2021 to the same quarter in 2019 to measure the extent of the recovery.

For US visitors to the EU, spending in 2021 was already at 91 per cent of 2019 levels. In the UK it was just 49 per cent. More shockingly, spending by Gulf Cooperation Council (GCC) visitors stood at 153 per cent of 2019 levels. In the UK it had only reached 60 per cent.

In 2019, direct tax-free shopping sales in Edinburgh were around £60m. With the Office for Budget Responsibility forecasting that ending tax-free shopping will reduce sales by around 38 per cent, the predicted loss to Edinburgh shops is around £23m each year, and £1.2bn across the UK.

These high spending visitors are clearly diverting their spending from the UK to France, Italy and Spain who have more beneficial tax regimes.

Compelling evidence in this regard has been submitted to a Parliamentary Select Committee inquiry into Britain’s international tourist economy. We hope that the Committee will put pressure on the Government to respond positively.

Although a UK responsibility, Edinburgh and Scotland simply has to address the issue and our government must continue their lobbying of Westminster and the Treasury to make this change in support of our retail and hospitality sectors.

Edinburgh, of course, has many varied and wonderful reasons to visit our magnificent city but for some potential visitors the lure of tax-free shopping is near the top of their list.

We need to support our retail and hospitality businesses in their recovery, and it would be a tangible, well received and logical move to reverse this hurtful policy decision by Westminster.

Roddy Smith, Chief Executive, Essential Edinburgh