Paris and Milan have the edge over London due to VAT-free shopping says Harrods chief

According to Michael Ward, the managing director of Harrods, the 173-year-old retailer is falling behind Paris and Milan’s luxury trade subsequent to the UK axing VAT-free shopping.

Paris and Milan are overtaking London’s luxury trade, Michael Ward warns. Speaking to The Telegraph, he claims the decision to stop VAT-free shopping has put tourists off making luxury purchases in Britain’s capital city.

European countries, such as France and Italy, both still allow international shoppers to claim VAT back, yet the UK stopped this following Brexit at the end of 2020. To combat this decline in tourism, Harrods has made efforts to source exclusive designer pieces that aren’t available to shoppers in other European capitals.

Former Chancellor Kwasi Kwarteng planned to bring VAT-free shopping back in an update during autumn 2022. However, Chancellor Jeremy Hunt went back on this.

Ward urges the government to overturn its tourism strategy as people start to return following the pandemic. He commented: “If I’m going to buy a Christian Dior saddlebag for £2,000, why wouldn’t I buy it in Paris? We’ve got to make it up by being smarter in what we’re offering to that customer. We want more exclusive products so that they can’t buy the same thing in Paris.

“It’s actually really key to have – because we’re competing against Europe, which has a very comprehensive tourism strategy and that is integrated across the whole of Europe. We need to be ahead of that.”

In 2021, the UK launched a tourism recovery plan, in which it determined the country to recover to pre-pandemic numbers of tourists by 2023. However, visitor numbers remain low, despite Covid rules having been lifted.

In August 2022, 3.5 million people visited the UK from overseas, down by a fifth from August 2019 levels. These tourists spent £3.1 billion over the month, in comparison to £3.5 billion in 2019.

The Government has said it is scrapping VAT-free shopping for tourists as the move would save £2 billion annually. The Treasury said in a statement that it comes as “part of the UK’s commitment to fiscal discipline”.

The Treasury’s estimates have been disputed, and retail chiefs such as Ward have called for an independent review of the policy. Oxford Economics research suggests that the UK could raise a further £350 million in tax revenues if they brought back the measure, saying if VAT-free shopping came back then visitors would flock back into the UK and spend more on hotels and attractions in the country.

This plea comes as China begins to ease its Covid restrictions. In late 2019, £1 of every £5 spent by Chinese visitors in London had been at Harrods. Ward claims has yet to come back in full.

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