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Luxury retailers are choosing China over London as the “tourist tax” stifles a post-pandemic shopping resurgence, the head of a payments processing company has warned.

Alan Holcroft, of Cegid, which works with about a thousand retailers, including Hugo Boss, L’Oréal and Lacoste, said the scrapping of tax-free shopping for tourists had been an “own goal” for Britain.

Big rebate companies, such as GlobalBlue and PlanetTaxFree, advertise heavily in China to lure tourists to tax-free shopping destinations in Europe, offering “cashback” rebates through apps.

“When this Chinese middle class with a lot of disposable income wanted to come to Europe for the first time, they chose London for its tax-free shopping,” Holcroft said, “but since the UK scrapped this, the traffic of international tax-free shoppers coming to Europe was significantly down on pre-Covid levels. Retailers saw the reduction.” Cegid recorded a fourfold increase in formal inquiries from European-based retailers wanting to open shops in China last year.

In January 2021 the Treasury scrapped a scheme enabling VAT refunds for shoppers from outside the European Union as part of a post-Brexit consultation scheme, saying it was a “costly relief which does not benefit the whole of Great Britain equally”.

Holcroft, 52, said: “The knock-on impact is a less diverse high street — Oxford Street’s long-closed flagships are a case in point —as well as fewer jobs and empty stores not generating revenue through business rates that would have fed back into the local economy.”

Mulberry closed its shop on Bond Street in London this year after sales and customer numbers plummeted, blaming the closure on the end of VAT-free shopping. At the same time, its revenue in China has surged.

A report by the Centre for Economics and Business Research has suggested that revenue from restoring tax-free shopping would outweigh the losses associated with VAT refunds by £2.3 billion.

The Treasury disputes this. It said: “The scheme could cost British taxpayers around £2 billion a year. Fewer than one in ten non-EU visitors used the previous scheme, showing it’s not a significant attraction for tourists.”

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Luxury retailers are choosing China over London as ‘tourist tax’ bites

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