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France has benefitted the most from the removal of tax-free shopping in the UK, as American and Chinese luxury consumers flock to cities like Paris, new research shows.
France now accounts for almost half (46 per cent) of tax-free spend in Europe, up from 30 per cent in 2020 — the last full year in which the UK offered VAT-free shopping for international visitors, according to the report by payment company Planet, which manages VAT refunds. In 2020, the UK had the second biggest slice of the market, at 23 per cent.
Italy is now the second largest tax-free shopping market in Europe with a 19 per cent share of spend (up from 13 per cent in 2020), the research shows.
Mayor of London Sadiq Khan has written to UK chancellor Jeremy Hunt, backed by 30 luxury and retail leaders, asking him to bring back VAT-free shopping for international tourists to boost the British economy.
The UK is the only European country not to offer tax-free shopping for international visitors after the government scrapped the scheme in 2021. At the time, the UK Treasury said it was “a costly relief that does not benefit the whole of [Great Britain] equally”. Since then, several British brands and retailers, including Burberry, Harrods and Selfridges, have urged the government to reinstate the scheme to help boost the British economy. In June, British luxury brand Mulberry said it had been forced to close its store on London’s Bond Street amid declining tourist sales following the policy move.
A proposal to reinstate the scheme will be debated in the House of Commons on 7 September. The debate was secured through a campaign by the Association of International Retail and New West End Company, which represents retail and hospitality businesses in London’s key shopping areas of Regent Street and Oxford Street.
“As we approach this peak time for international spending, it makes no sense that for the price of a Eurostar ticket, tourists visiting the UK have to make the two-and-a-half hour trip from London to Paris to shop tax-free when they should be able to do so here in the UK,” said Luca Cassina, president of retail at Planet, in a statement. “Reinstating tax-free [shopping in the UK] would give tourists a wider choice of destinations to choose from to shop. UK retailers would enjoy a level playing field, which especially benefits those who do not have stores across Europe and away from London in the regions.”
“VAT-free shopping does not directly benefit Brits — it lets foreign tourists who buy items in the UK to claim back VAT as they return home,” a UK Treasury spokesperson told Vogue Business. “The scheme could cost British taxpayers around £2 billion a year at a time when we’ve already had to take difficult decisions to get debt falling and fewer than one in 10 non-EU visitors used the previous scheme, showing it’s not a significant attraction for tourists.”
Planet’s report showed that, generally, tax-free sales are recovering well following the Covid-19 lockdowns, though they are still 10 per cent below pre-pandemic levels. In June, tax-free sales in Europe rose by 18 per cent month-on-month — the fourth consecutive month of growth. France led the way with a 22.3 per cent surge. “A full recovery in tax-free sales across Europe this summer is now within reach,” the report predicts.
American and Asian tourists are leading the growth. In France, tourists from the US drove the most growth in the region, accounting for 27 per cent of all retail sales in the country, followed by China at 14 per cent, Korea at 5 per cent and Taiwan and Hong Kong at 4 per cent. Similarly, in Italy, US consumers led spending in the market, accounting for 33 per cent.
The report predicts that demand for travel from US and Canadian nationals will surpass pre-pandemic levels this year by 11 per cent and 4 per cent respectively, as ticket sales figures for international flights show an uplift in European travel.
Despite the surge in US shoppers, Asian tourists continue to dominate the market, accounting for 36 per cent of all European tax-free sales. They are also the highest spenders: the average transaction value for Asian consumers is €1,046, rising to €1,341 for Chinese shoppers. North American consumers spend on average €978.
“We’re delighted to see the recovery of tax-free sales across the continent accelerating as we approach the main summer travel and tourism season,” said Cassina.
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