Heathrow warns battle for GCC spending on the line in duty-free shopping row

Airport's retail income down by 25 per cent in first half of 2023

Heathrow Airport. Shopping is a key part of why people travel, says the airport's chief commercial officer. Getty Images

Heathrow has warned the UK’s international competitiveness is “on the line” over the government's refusal to reinstate tax-free shopping for tourists.

The UK scrapped the tax relief – which had allowed visitors to claim 20 per cent back from their purchases – in late 2020, saying it would provide revenue worth an estimated £2 billion for the UK Treasury.

However, critics suggest the benefits were vastly overblown, and it has actually ended up in the loss of about two million visitors to the country.

Parliament was debating the issue on Thursday, as many retailers call for the reinstatement of the rebate.

Fraser Brown, retail director at Heathrow, told The National that the hub, which is the world’s second busiest after Dubai International, “stands firm with the ever-growing number of businesses up and the down the country calling for the return of tax-free shopping”.

“The UK’s international competitiveness is on the line as tourist spend in the UK continues to be eclipsed by our European neighbours where goods are up to 20 per cent cheaper,” he said.

“The government must remove this tourist tax to level the playing field for British businesses and deliver much needed economic growth across the country.”

His comments came days after Rachel Bulford, head of retail at Gatwick Airport, also called for the reintroduction of tax-free shopping, saying it would attract more than 1.6 million extra visitors to the UK in 2025 and 2026, and stimulate an extra £2.8 billion of tourist spending.

Writing in the Moodie Davitt report, she cited research by Oxford Economics which showed reinstating the tax refund scheme would provide a £340 million annual boost to the Treasury.

“London Gatwick alone has seen an 8 per cent decline in spend within its fashion retail outlets since tax-free shopping was removed, and a 3 per cent decline in overall spend across the airport’s retailers,” she wrote.

“This translates into millions of pounds in lost revenue.”

Ross Baker, chief commercial officer at Heathrow, said the hub has also witnessed the harm resulting from the policy first-hand.

“There are about 320 outlets across Heathrow’s four terminals, so we are a great barometer,” he said on Radio 4’s Today show on Thursday.

“And prior to the removal of tax-free shopping, passengers internationally had voted us the best airport in the world for shopping for 10 years in a row. That’s not happened since.

“And over [the first half] of this year, our retail income is down about 25 per cent versus the same period in 2019 prior to the removal of the policy. So it’s a significant change in behaviour we are experiencing.”

Spending by visitors from the US and GCC in the country as a whole has been heavily impacted, he said.

“Spend from international visitors from the US and the GCC countries is two to three times more in France or Italy than it is in the UK,” said Mr Baker.

“Some recent figures by Global Blue show that 10 per cent of UK spending by international visitors from 2019 has now relocated to EU countries. It’s not just a retail issue.

“It applies to tourism, hospitality, culture, shows, museums. Travellers are spending elsewhere and that’s damaging for the UK economy.

“Shopping is a key part of why people travel. Particularly different nationalities really look for that when they are weighing up where to take their breaks.”

A recent report from the Centre for Economics and Business Research estimated that spending eligible for tax-free shopping stood at £6.6 billion last year, rising to £7.7 billion this year.

Assuming all visitors took up the VAT rebates, about £1.1 billion of this would have been returned to customers in 2022, and £1.3 billion in 2023.

It estimated that the cost reduction would have increased visitor numbers by 1.7 million last year, rising to two million in 2023.

Decades of flight: Heathrow through the years – in pictures

Heathrow Airport in London, the UK's busiest, has been a travel hub for decades. Here The National takes a look back at Heathrow through the years. All photos: Getty Images

An Airco De Havilland biplane of the British airline, Aircraft Transport and Travel Limited, about to leave on the company’s inaugural flight from Hounslow Heath Aerodrome, later known as Heathrow, to Le Bourget, Paris, in August 1919

Waterlogged runways at London Airport - Heathrow's original name - one week before it became Britain's main aerial gateway to the US in 1946

The new BOAC maintenance headquarters at London Airport circa 1955

The air traffic control room at the airport's new terminal in 1955

US film star Marilyn Monroe with her husband, playwright Arthur Miller, after arriving at the airport in July 1956

An aerial view showing the runways in 1958

The arrivals and departures board in 1960

A new airport gift shop, selling items by Chanel, Wedgwood and Pringle of Scotland, in 1961

The Queen's Building and the No. 1 Building Europa at Heathrow in 1965

The Beatles leave Heathrow for Salzburg in Austria, to resume filming of the movie Help!, in 1965

Passenger terminal gates at Heathrow in 1966

Keith Granville, managing director of BOAC, holding up a model of the Boeing 747 jet, with the new aircraft hangars under construction in the background, at Heathrow in 1969

An aerial view of Heathrow in 1970

Passengers boarding the first BOAC Jumbo Jet 747 used for a commercial flight, from London Heathrow to New York, in 1971

Passengers going through the departure lounge at Heathrow in 1973

Concorde takes off from Heathrow on her first commercial flight for British Airways in 1976

Men at work finalising the Heathrow Central underground station before its opening in 1977

Queen Elizabeth II passing though the Tube gates at Heathrow Central station on its opening in 1977

An aerial view of Heathrow in 1978

Passengers waiting near a departures board in 1979

Holidaymakers waiting in the departure lounge at Terminal 3 of Heathrow in 1981

British Airways employees protesting at Heathrow in 1984

Passengers and staff observe a silence in Heathrow's Terminal One to mark the beginning of the funeral of Diana, Princess of Wales, in 1997

Rower Steve Redgrave at Heathrow with daughters Sophie and Natalie and son Zak after returning from the Sydney 2000 Olympic Games with his gold medal

Spectators watch the last Concorde land at Heathrow in 2003

Fans surround the coach carrying the England rugby team at Heathrow, as they arrived from Sydney after winning the World Cup in 2003

Heathrow's Terminal 2 in 2004

Passengers queue to check in at Terminal 1 of Heathrow Airport during the Christmas 2006 and New Year period

Passengers wait at Terminal 1 on August 10, 2006, after airport security was raised to critical when a terrorist plot to blow up planes in mid-flight from the UK to the US was disrupted by police

Planes queueing to take off at Heathrow in 2007

The new Terminal 5 at Heathrow in 2008

Aircraft at Heathrow Airport in front of the London skyline in 2016

Members of Team GB arrive from Rio de Janeiro at Heathrow, after returning from the 2016 Olympics, which saw Great Britain's strongest performance at the Games in over a century

A composite photo shows planes taking off from Heathrow in November 2016. Forty-two planes were captured between 10.17am and 11.17am and a montage was created from those single images

Items are arranged during an auction preview at Heathrow in 2018. The contents of Terminal 1, which closed in 2015, were being sold

An airline passenger wearing a face mask pushes her bags through Heathrow's Terminal 5 during the coronavirus pandemic in 2020

British Airways employees welcome Olympians returning from the Tokyo Olympics in 2021

Travellers wait in a long queue to pass through the security check in 2022