Neither Rishi Sunak nor Kier Starmer are going to mention the tourist tax this side of the general election, but it is worth scouring their manifestos, when published, for any hint that either party might reinstate VAT rebates for overseas visitors.
Let’s be honest, we only need to read Labour’s prospectus.
Which is a problem because it is impossible to imagine the party putting the affordability of luxury trinkets for wealthy foreigners ahead of measures to help squeezed households in this country.
But it should. Removing the ability for tourists to reclaim 20% VAT as they leave the country has caused these premium punters to take their business elsewhere, and that is bad for the whole country.
Brian Duffy, CEO of Watches of Switzerland Group, addressed the issue during a conference call for its end of year financial results in May.
“Tourists have certainly come back from the US, the Middle East and elsewhere, but the real concentration of where they’ve gone to and where they’ve been spending money has been in the EU countries: France, Portugal, Germany and Italy are all hugely benefiting,” he suggests.
Treasury officials say they have been crunching the numbers on tax receipts since rebates were withdrawn, but Mr Duffy questions how they approach the broad impact across retail, hospitality and leisure industries.
He certainly reaches a different conclusion, but hopes that the case for reinstating rebates will, eventually, become irresistible.
“The statistics are becoming more and more evident to everybody. And it was always our view that when the actuals start to happen, then the differential that there was, and the government’s assessment versus the retail industry’s assessment, would have been reconciled; that everybody would have seen the facts and the impact. We think it’s inevitable,” Mr Duffy urges.
Watches of Switzerland Group’s forecast for its 2025 financial year, which runs through to next April, assumes that the tourist tax will remain, a safe bet with the near certainty of a new Labour government.
Data released by the Centre for Economics and Business Research (CEBR) in February concluded that the lack of VAT rebates in the UK while still available on the Continent, is costing the economy £11.1bn in lost GDP and that visitor numbers to the UK would have been 589,000 higher in the third quarter of 2023 had VAT-free shopping been available. This would have delivered £4bn in further spending.
Britain remains a world leader in luxury shopping, but its crown is slipping because, not only are foreign visitors spending elsewhere, so are wealthy Brits who can take the Eurostar to Paris and, effectively, enjoy 20% discounts on a weekend break.
I see this impacting retailers, which are sprinting to stand still and can be expected to show squeezed margins when accounts for 2023 are published, but also in the market for high end watch brands.
There is a rising passion for independent watchmakers in the UK, but most of these indies have little or no representation in this country because they see it as uncompetitive when even the British are doing their shopping abroad.
Gerald Charles is a good example. It opened a subsidiary office in the United States last year, and is rapidly building a network of ten prestigious retail partners. In Europe, it has an extensive network of doors across Switzerland, France and Italy. In the UK, it has just Arije, which is really just an extension of its partnership in Paris.
Will either main political party be brave enough to address this issue in its manifesto? I doubt it, but at a time when the government is desperate to get the economy growing again, realigning with Europe to offer VAT-free shopping is an easy win with a political hangover attached.
