Gucci and Tiffany warn Rishi Sunak end of duty free will ruin UK luxury market

Group of high-end brands write to Britain’s finance chief begging him to change course

Shoppers queue outside a Gucci shop on Bond Street in London, United Kingdom. The luxury brand is among 11 companies to urge the British government to abandon plans to end tax-free shopping in the UK. Getty Images

A group of luxury brands, including fashion icon Gucci, jeweller Tiffany and diamond specialist De Beers, has urged the British government to abandon plans to end tax-free shopping in the country, because it will cost the economy billions “at the worst possible time”.

The government announced in September that tax-free shopping would end for all visitors to the UK after the end of the Brexit transition period on December 31.

The introduction of a 20 per cent tax will result in these visitors opting to spend their money elsewhere in Europe rather than in the UK.

The move will prevent non-EU visitors from receiving a VAT refund on items they buy in Britain and take home in their luggage. It will also stop tax-free sales on goods such as clothes, electronics and perfumes bought at airports. VAT stands at 20 per cent.

Industry bodies had expected the government to extend the scheme to include EU nationals once the Brexit process was completed. British holidaymakers will also be hit by extra taxes at the airport till as savings for travellers leaving the UK will be limited to tobacco and alcohol.

In an open letter sent to UK finance minister Rishi Sunak and signed by bosses at 11 luxury companies, the firms said the move to end VAT refunds for international visitors to British shops from January 1 was deeply troubling.

“We greatly value Britain's status as a world-leading shopping and tourism destination and have invested in the UK accordingly ... but the Treasury's plan would put this status at risk. We operate globally and understand the price sensitivity of international visitors,” the letter said.

“The introduction of a 20 per cent tax will result in these visitors opting to spend their money elsewhere in Europe rather than in the UK. We believe that in the midst of the economic disruption caused by the global pandemic this would be the worst possible time to disincentivise visitors from coming to the UK.”

Duty-free shopping at Heathrow Airport in London. Industry bodies had expected the government to extend the tax-free scheme to include EU nationals once the Brexit process was completed. Prisma by Dukas/Universal Images Group via Getty Images

The letter comes a week after Heathrow, Britain's biggest airport, said it was preparing a legal challenge against the government's decision to scrap VAT-free shopping for international tourists on goods such as perfume, clothes and electronics.

Heathrow's chief executive John Holland Kaye also sent a letter to Mr Sunak, co-signed by tax refund specialist Global Blue and the World Duty Free Group, saying the airport wanted a judicial review of the decision to abolish the VAT Retail Export Scheme and withdraw airside tax-free shopping in all UK airports at the end of this year.

The airport said the decision to end duty-free shopping could cost tens of thousands of jobs thoughout the aviation industry, with luxury products accounting for as much as three-quarters of total sales in airports.

The luxury brands, which also included clothes retailer Hugo Boss, watch maker Breitling and knitwear specialist Missoni, said ending tax-free shopping would cost Britain its place as a world-leading tourism and shopping destination. They said the 20 per cent tax hike makes the UK "the least competitive duty-free regime in Europe” as tourists will spend their cash on the continent instead.

"This cannot be good for our business in the UK, or for the Treasury, which will lose billions of pounds of revenue," they wrote.

In September, the government said the post-Brexit changes would allow EU passengers travelling from the UK to buy alcohol and tobacco without paying VAT and excise duty for the first time once they have passed through security controls.

It also said overseas visitors would still be able buy VAT-items in stores and have them sent directly to their overseas addresses.

With less than 10 per cent of non-EU visitors to the UK using the VAT refund shopping scheme, extending the scheme to EU visitors could cost up to £1.4bn ($1.8bn) a year, according to HM Treasury, which also said airports do not always pass savings on to consumers and that the in-shop VAT refund scheme is "costly".

Last month, leading retailers, including Ted Baker, Fortnum & Mason, Boots, Dixons and Marks & Spencer, labelled the tax increase a “hammer blow” to the industry. They claimed such a move would cost £10bn in lost sales annually - leaving the taxpayer £2bn short - and 70,000 industry jobs, with scores of hospitality roles also likely to go if visitors are discouraged from spending in the UK.

Official figures this week showed just 398,000 tourists arrived in the UK between April and June – a reduction of 96 per cent.