Paul Smith says ‘tourist tax’ has dented his UK store sales

Sir Paul Smith is the latest big name to weigh in on the issue of tax-free shopping for tourists in the UK with the designer saying the axing of the perk post-Brexit has definitely deterred non-EU consumers from visiting the UK to shop and spend.

The decision to stop tourists from claiming back the VAT of products they buy and carry home with them has been nicknamed the ‘tourist tax’ and comes after earlier hopes that rather than being axed, it would actually extended to EU shoppers too.

Paul Smith told The Times that the tourists who used to flock to his Albermarle Street, Mayfair flagship from countries like China, Korea and Japan are visiting less often these days.

He said that since 2019, the number of non-EU customers shopping at his 17 UK stores is down as much as 47%. And he attributes this to the fact that they have to pay the 20% VAT on their purchases that they’d be able to claim back in other major tourist destinations.

“It’s been a shock,” he said. “A 47% reduction in the amount of non-EU customers coming through our shops equates to quite a few million quid. Effectively, we’re 20% more expensive than every EU country.”

And he added that when he’s in his flagship on Saturdays, “I see a lot of my customers from all across the world and they say: we’re only here for a couple of days, then we’re off to Paris, or Milan … and that’s where they spend their money now. It’s definitely affected us as a company. And not just my London shops either, because I’ve got shops in places like Manchester and Nottingham and the tourists travel all around the country these days.”

To justify its decision to cancel the perk, the government had pointed to VAT takings that it would now be able to bank and also suggested that it was closing a loophole that only benefitted the wealthy.

However, multiple studies have shown that the wider financial benefit of VAT-free shopping easily outstrips the money its repeal brings in. 

Meanwhile, retailers and relevant trade bodies have also pointed out that very many tourist shoppers who take advantage of the perk are more likely to be ‘aspirational’, having saved up for their trip, rather than the very wealthy. 

Sir Paul, meanwhile, also highlighted the wider economic benefits of tax-free shopping.

He said: “I think the government are misunderstanding the impact it has. It’s not just to do with the loss of sales at luxury businesses. It’s also hitting cafes, restaurants, hotels. It’s not just la-di-da luxury, it’s ordinary people trying to run businesses. Sometimes I look out of the window in Mayfair and the street’s completely empty.”

The Times article also cited international shoppers at Bicester Village urging the government to bring back the perk.

And while the pandemic could have been blamed for some of the reduced tourists visits several years ago, there have been plenty of reports showing tourism in France, Italy and Spain in particular bouncing back.

The Association of International Retail (AIR) said tourist spending in UK shops was down 28% in 2022 compared to 2019. Was the pandemic to blame here? Maybe, but at the same time, spending in France, Italy and Spain increased to 98% higher than 2019 levels. 

The newspaper also cited new data from Global Blue, the tax rebate provider, that identified 34,000 tourists who’d done their tax-free shopping only in the UK in 2019 who were now doing it in the EU instead. Some 35% were spending in France, 32% in Italy and 13% in Spain.