Brexit 5: Brexit and VAT-free shopping; Double win for EU

By Aris Myriskos December 18, 2020 8:01 pm

In September, the Treasury announced that, following the end of the Brexit transition period on 1 January, the VAT-free shopping in the UK will end. This development sparked major reactions. Heathrow airport, together with the World Duty Free Group (WDF), which runs duty-free shops in airports and the Global Blue, which operates tax-free shopping provision on the high street, sought to overturn the Government’s decision. Nevertheless, the High Court ruled against the claim that the British Government failed to consider the highly negative impact of its decision on businesses that rely on tourism.

In their appeal, the applicants characterized the Government’s decision as irrational highlighting that ending the two respective tax-free schemes, VAT Retail Export Scheme (RES) and Extra Statutory Concession (ESC), will cost thousands of jobs. More specifically, the estimation for the termination of the RES is that it will cost 19,000 jobs, while for the ESC, it is expected that between 27,000 and 41,000 jobs will be cut.

This week Burberry also posed strong criticism of the scrapping of tax-free shopping. The Company’s Chief Operating and Financial Officer Julie Brown worried that this would favour competitor brands in France and Italy. Like WDF and Global Blue, Brown warned about the potential damage to the British economy as a result of tourists’ turning to other European markets.

An important market share in which the EU is expected to expand as a result of the end of the British VAT-free scheme is shopping by Chinese tourists. In 2018, the European Commission, in coordination with the European Travel Commission, initiated the EU-China Tourism Year to promote destinations and improve tourism experience. As a result, not only did trips from China to Central and Eastern Europe significantly increase but today it is more likely for Chinese travellers to arrange a trip to multiple European destinations. After the end of the Tax Free Shop in the UK, Chinese tourists will probably opt to shop upon their arrival in other European destinations.

At the same time, EU countries with a high percentage of British tourists count on Brexit to reinforce their retail markets. The European Union applies Tax Free Shopping for the residents of third countries. Therefore, as of 1st of January, citizens from England, Scotland and Wales will get to shop tax-free in the EU.

On the one hand, the UK Global Blue stands against the British Government’s decision to stop the tax-free programme on the eve of Brexit. On the other hand, from the 1st of January, the Global Blue Hellas expects the increase of the company’s and Greece’s earnings. The CEO of Global Blue Hellas stated yesterday that including British tourists in Greece’s tax-free scheme will boost the Greek retail market. Given that in 2019 Greece had 4 million visits from the UK, the CEO considers Brits as a group of the most valuable tax-free tourists. He also stressed the benefits for Brits through the savings provided by the Tax Free Shopping.

According to the Association of Greek Tourism Enterprises, in Greece, the UK is the second country with most incoming flights, holding 11% of the market share in terms of inbound tourism. In addition, the purchasing power of British tourists in Greece is expected to rise between 20% and 25%. This estimation is based on the savings that the Tax Free Shopping programme provides as well as on the fact that the Greek prices of goods are 5% -10% lower compared to prices in the UK.

And, of course, Greece is not the only country. Other European retail markets also view the incorporation of British citizens in the EU’s VAT-free scheme as an important gain that could mitigate the financial loss caused by COVID-19. What remains to be seen, however, is to what extent COVID and its travel restrictions will affect this financial opportunity.

The Whitehouse team are experts in providing public relations and public affairs advice and political analysis to a wide range of clients, not only in the United Kingdom, but also across the member states of the European Union and beyond. For more information, please contact our Chair, Chris Whitehouse, at chris.whitehouse@whitehouseconsulting.co.uk.

By Aris Myriskos December 18, 2020 8:01 pm

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