Harvey Nichols, The Fragrance Room

LONDON — From a shot in the arm — to a shot in the foot.

Britain’s beleaguered retailers reacted with shock and anger this week to a decision by the U.K. Treasury to wipe out the longstanding, tax-free shopping scheme for foreign tourists, a move that will dent sales across fashion, beauty and accessories and impact high-end retailers including Harrods, Selfridges, Harvey Nichols and Liberty.

From Jan. 1, 2021, international shoppers will be able to buy goods tax-free in the U.K. if they agree to have them mailed back to their home countries.

New West End Company, which represents retail and hospitality businesses around Oxford, Regent and Bond Streets, called the decision a “hammer blow” for British retailers, who are already fighting the triple-headed monster of COVID-19, Brexit-related trade uncertainty and onerous U.S. duties on certain luxury goods made here.

“British businesses are dismayed at the Treasury’s surprise decision to end the tax-free shopping scheme. This is a massive blow to the U.K. economy, with the government effectively telling international tourists, particularly those from the Middle East and Far East, for whom shopping is a major draw, to go everywhere else but the U.K. to spend their money,” the lobby group said.

“Not only will the Treasury save nothing, but the inevitable fall in international tourist numbers and spending in the U.K. will reduce all other VAT income,” the organization argued, adding that total annual spending by international visitors is more than 22 billion pounds, of which 10 percent is tax-free shopping.

“This is going to cost the U.K. billions in lost tourism as we become the only country in Europe not to offer tax-free shopping to international visitors,” the lobby added.

Tax-free shopping is an institution in the U.K., with the likes of Selfridges — which has stores across the country — and Bicester Village in Oxfordshire setting up special desks to process the tax-free paperwork as a service to shoppers. Currently, non-EU visitors can shop in the U.K. and claim the cost of local, value-added tax back on their purchases.

Two years ago, Global Blue, which specializes in handling the tax-free payments, opened its own concierge service and lounge on Albemarle Street, offering coffee and Champagne to customers as they wait for their tax-free paperwork to be finalized.

Retailers had been expecting the Treasury to retain the tax-free scheme, and to extend it to EU countries as of next year, once Britain is finally out of the EU.

New West End Company argued that the Treasury’s decision will transform a potential 2.1 billion pound, tax-free shopping bonus from the U.K.’s departure from the EU into a 3.5 billion-pound loss of tax-free sales.

“This is a 5.6 billion pound-hit on the U.K. economy even before accounting for the negative knock-on effect on wider international tourism spending, at a time when retail and tourism across the U.K. are already reeling from the impact of COVID-19,” the organization said.

The lobby group pointed out that high-spending tourists will now choose to go to Paris, Rome “or indeed any European country other than the U.K. to spend their money. The decision will clearly damage the government’s ambitions for a ‘Global Britain.’ Far from securing an extra 500 million pounds in tax from the 3.5 billion pounds spent each year by international visitors, the move risks those sales moving overseas to Paris and other destinations.”

In a decision published online, the Treasury argued simply that the current tax-free system was too fussy and expensive. The Treasury said it made its decision based on interviews with stakeholders during a review conducted earlier this year, during lockdown.

“Many stakeholders have told us about the operational challenges of the current system, and that they do not want to see an extension of the scheme to the EU in its current paper-based form. By contrast, other stakeholders have explained the benefits that they see, and that they would like to see the scheme extended to the EU in digital form, which the government continued to explore in parallel with the consultation,” the government paper said.

“However, the VAT Retail Export Scheme is a costly relief which does not benefit the whole of GB equally, with current use of the scheme largely centered in London. Retailers will instead continue to be able to offer VAT-free shopping, consistent with international principles of taxation, to non-EU visitors who purchase items in store and have them sent directly to their overseas addresses. Following the end of the transition period, this will also be available to EU visitors.”

British shoppers traveling into the European Union will still be able to shop tax-free in every country as of Jan. 1, 2021.

Jace Tyrrell, chief executive officer of New West End Company and chair of the Association of International Retail, called the decision “a disaster for the U.K., not only to the West End. Retail and tourism across the U.K. are already reeling from the impact of COVID-19 and are in need of a boost — not self-inflicted wounds.

“We’re astonished that this decision appears to have slipped through as a footnote on a wider consultation on the expansion of duty-free shopping. In seeking to secure millions in tax revenues, the U.K. is throwing away billions in overseas spending at a time when we need to welcome the world — and its wallets — to our towns and cities across the U.K.”

Tyrrell said that annual spending by international visitors in the U.K. is more than 22 billion pounds, so any reduction in the appeal for holiday makers and visitors “will have significant financial consequences.”

He added that New West End Company, along with industry colleagues, are considering legal advice on how best to proceed with the government’s decision.

Joss Croft, ceo of UKinbound, the trade association that represents inbound tourism, said the Treasury’s decision was “another nail in the coffin of Global Britain, a short-sighted action that will negatively impact the U.K. economy and reduce our global competitiveness. Instead of putting up barriers to trade, the government needs to urgently consult with businesses, so it fully understands the ramifications of this policy and adapt it before irreparable damage is done.”

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