Tourists shopping in London VAT
A new report suggests that Britain is losing £750 million a year in spending by Chinese tourists as a result of Rishi Sunak’s tourist tax.
Research by the Association of International Retail (AIR) found high-spending Chinese tourists were preparing to shop in places such as France, Italy and Spain rather than the UK – where VAT-free shopping is still available.
The AIR attributed the decision to end VAT-free shopping in 2021, which has increased tourists’ bills by 20 per cent.
AIR chief executive Paul Barnes said: “If you want your economy to do well in the international visitor sector, you’ll really want to attract the Chinese, and one thing that attracts the Chinese is shopping.”
He warned that there was a risk that London could become like Venice, “where you get all these people who come in coachloads but spend no money and crowd the streets”.
AIR estimated that the UK is on track to lose £750 million from the loss of Chinese tourist spending, based on a previous study by KPMG on the price sensitivity of Chinese tourists and the projected decline in visitors.
The number of Chinese tourists visiting the UK has grown rapidly in the last decade. Travelers from this country are the highest spending tourists in the world.
In addition to London, Chinese shoppers have flocked to other major cities including Manchester and Edinburgh, as well as popular outlet shopping destinations such as Bicester Village.
However, the AIR report found that Chinese travelers are now choosing to shop in France, Italy and Spain instead. These European countries have dramatically outperformed the UK in terms of tourist spending levels since 2019.
Mr Barnes warned that alienating Chinese visitors would shut out the biggest potential source of future growth for the retail sector. International brands may also reconsider their long-term investment plans in the UK.
Lawmakers will this week debate tax-free shopping for international visitors. The AIR called on the government to conduct a full economic assessment and reverse the policy before the UK fell out of favor completely.
The warning comes as Chinese travel is resuming after an extended Covid lockdown.
James Cleverley, who this week made the first visit to Beijing by Britain’s foreign secretary in five years, is also seeking improved economic ties with China as part of efforts to mend ties with the communist state.
The Treasury has previously argued that the tourist tax would have little or no effect on shopping behaviour, while increasing public income.
A Treasury spokesman said: “VAT-free shopping doesn’t just benefit Britons directly – it gives overseas tourists buying goods in the UK the flexibility to claim VAT when they return home.
“The scheme could cost British taxpayers almost £2 billion a year, at a time when we have already had to make difficult decisions to reduce debt and less than one in ten non-EU visitors The previous plan has been used, indicating that it is not an important attraction for tourists.”