Heathrow warns battle for GCC spending on the line in duty-free shopping row

Heathrow has warned the UK’s international competitiveness is “on the line” over the government's refusal to reinstate tax-free shopping for tourists.

The UK scrapped the tax relief – which had allowed visitors to claim 20 per cent back from their purchases – in late 2020, saying it would provide revenue worth an estimated £2 billion for the UK Treasury.

However, critics suggest the benefits were vastly overblown, and it has actually ended up in the loss of about two million visitors to the country.

Parliament was debating the issue on Thursday, as many retailers call for the reinstatement of the rebate.

Fraser Brown, retail director at Heathrow, told The National that the hub, which is the world’s second busiest after Dubai International, “stands firm with the ever-growing number of businesses up and the down the country calling for the return of tax-free shopping”.

“The UK’s international competitiveness is on the line as tourist spend in the UK continues to be eclipsed by our European neighbours where goods are up to 20 per cent cheaper,” he said.

“The government must remove this tourist tax to level the playing field for British businesses and deliver much needed economic growth across the country.”

His comments came days after Rachel Bulford, head of retail at Gatwick Airport, also called for the reintroduction of tax-free shopping, saying it would attract more than 1.6 million extra visitors to the UK in 2025 and 2026, and stimulate an extra £2.8 billion of tourist spending.

Writing in the Moodie Davitt report, she cited research by Oxford Economics which showed reinstating the tax refund scheme would provide a £340 million annual boost to the Treasury.

“London Gatwick alone has seen an 8 per cent decline in spend within its fashion retail outlets since tax-free shopping was removed, and a 3 per cent decline in overall spend across the airport’s retailers,” she wrote.

“This translates into millions of pounds in lost revenue.”

Ross Baker, chief commercial officer at Heathrow, said the hub has also witnessed the harm resulting from the policy first-hand.

“There are about 320 outlets across Heathrow’s four terminals, so we are a great barometer,” he said on Radio 4’s Today show on Thursday.

“And prior to the removal of tax-free shopping, passengers internationally had voted us the best airport in the world for shopping for 10 years in a row. That’s not happened since.

“And over [the first half] of this year, our retail income is down about 25 per cent versus the same period in 2019 prior to the removal of the policy. So it’s a significant change in behaviour we are experiencing.”

Spending by visitors from the US and GCC in the country as a whole has been heavily impacted, he said.

“Spend from international visitors from the US and the GCC countries is two to three times more in France or Italy than it is in the UK,” said Mr Baker.

“Some recent figures by Global Blue show that 10 per cent of UK spending by international visitors from 2019 has now relocated to EU countries. It’s not just a retail issue.

“It applies to tourism, hospitality, culture, shows, museums. Travellers are spending elsewhere and that’s damaging for the UK economy.

“Shopping is a key part of why people travel. Particularly different nationalities really look for that when they are weighing up where to take their breaks.”

A recent report from the Centre for Economics and Business Research estimated that spending eligible for tax-free shopping stood at £6.6 billion last year, rising to £7.7 billion this year.

Assuming all visitors took up the VAT rebates, about £1.1 billion of this would have been returned to customers in 2022, and £1.3 billion in 2023.

It estimated that the cost reduction would have increased visitor numbers by 1.7 million last year, rising to two million in 2023.

Decades of flight: Heathrow through the years – in pictures