International shoppers and retail brands watched anxiously on Friday as the new Finance Minister announced his ‘mini budget,’ hoping to hear new shopping incentives. After months of campaigning to bring tax-free shopping back after it was scrapped in early 2021 under Brexit, the Finance Ministry has listened, and tax-free shopping will be returning to the United Kingdom.
As we’ve discussed in previous blogs, tax-free shopping is a huge motivator for Arab luxury shoppers and tourists, and London is one of the most desirable destinations. This will only improve following this huge win for shoppers and retailers alike, as the policy will undoubtedly have a massive impact for British brands and businesses, but it is only the first step. Shoppers may want to wait to book a plane ticket to London for the Christmas holidays, because it is still very unclear when the system will be back up and running, or even what it will look like.
Current
In early 2021, tax-free shopping was ended in the UK due to Brexit and shoppers and retailers immediately felt the impact. Arab tourists looking to make luxury purchases while on holiday began looking to destinations such as Paris and Milan to avoid the extra 20% VAT that was placed on all British goods they purchased. Some Arab shoppers went as far as coming to London for the shopping experience but flying to Paris to complete the purchase. This was devastating for luxury brands and shops in London and on high streets across the country. Prior to the end of tax-free shopping, it generated about £3.5 billion per year, and the loss of this forced many brands to reconsider their approach and even move locations outside of the UK. Luxury tourism as a whole contributes £30bn to the UK economy, from retail to hospitality, and the city’s economy is dependent on it. By removing tax-free shopping and making London less competitive when compared to other major European cities, this industry has been threatened. However throughout, London has remained a popular destination for Arab tourists, so it is reasonable to assume the re-introduction of tax-free shopping will help bring out the valuable spending of Arab luxury shoppers.
Businesses, individuals, and organisations have been campaigning to bring back tax-free shopping since it was removed in early 2021. The Association of International Retail, Walpole, and the New West End Company all brought forward evidence of the impact of removing tax-free shopping and how it has been overwhelmingly negative for the economy. This announcement is a massive victory for these groups.
Consultation
This announcement does not immediately signify the return of tax-free shopping however, instead it is a guarantee that consultations will soon be underway for how it can be brought back. Tax-free shopping will return, but it is still very unclear when it will be as no timeline has been given. It will likely not be in time for the Christmas shopping season, or perhaps even the popular tourism season in the summer months. Experts have noted the costs needed to cover the system are not present in the spending budget until 2024. Hopefully a timeline and greater clarity will be provided shortly.
The delay is not all bad news for shoppers and brands, this time will be spent consulting with representatives of both these groups, as well as government agencies to ensure it is done well and the process of claiming back VAT will be simpler and faster than it was in the past. Part of how this will be done is by digitising the system and making it more automatic, so shoppers do not need to wait in long queues at the airport and sort through large amounts of paperwork. On its return, tax-free shopping should be better than ever before for luxury shoppers from the Arab world and British brands.
This consultation period could also allow the government to speak to the people directly affected by the changes. We hope they will take the time to consult not only retail brands and businesses, but also international shoppers. This could ensure that the new system is accessible and appealing to Arab shoppers and therefore bring more in, helping the entire UK economy.
Arab Shoppers and Investors
Now more than ever Arab shoppers and investors are essential to London’s economy, and therefore important to the entire UK economy. This has been the case for UK throughout the recovery from the Covid-19 pandemic and establishing firm trading and investment after Brexit, however it is now predicted by experts that Arab shoppers and investors hold a significantly higher spending power than British people and companies. British residents and companies simply do not have the desire or ability to invest heavily or spend money on luxury goods. Industries relying on this must now look elsewhere. Arab shoppers and investors are the obvious solution to this, especially after showing their value in helping the UK recover from Covid and Brexit.
While many Arab shoppers and investors have remained keen to invest and shop in the UK, the end of tax-free shopping put a significant damper on this. By bringing it back, the UK can hope to once again attract these people and businesses and see significant profits from it.
Effects on Luxury Shopping
It is undeniable that this will change the landscape of luxury shopping. The United Kingdom will once again be competitive with prices for Arab shoppers and the shopping experience in London’s West End is unbeatable. Brands can expect to see massive improvements in their business from international shoppers quickly after the policy comes into effect, with many Arab shoppers already eager to get back to the popular shopping districts. Beyond London, all major high streets will see more tourists coming to spend money on their luxury goods and services.
However, this policy could take time to come about, and some retail spokespeople are now eager to see further policies to support them, specifically in regard to business rates. These are set to increase massively again this spring, and many brands are worried that the increased taxes will need to be passed down to consumers in the form of price increases. While tax-free shopping will recover this income, in the meantime, this could make the UK even less competitive when compared to other European shopping cities like Paris and Milan. This will need to be addresses to allow brands to fully recover from the devastation of the Covid-19 pandemic.
Conclusions
Tax-free shopping is back, and this is reason to be very excited. London and the shopping high streets can expect to see large amounts of Arab luxury shoppers back in their shops and ready to spend again soon. But some caution should be taken in assuming everything is back to the way it was prior to the policy ending. It will take time to reintroduce, and it will not look the same as it did in the past, but hopefully will be massively improved.
We look forward to seeing how this policy looks when it does finally return and once again make London the primary shopping destination for Arab luxury shoppers.
Course
Current trends are showing that international shoppers have a higher spending power and are willing to spend more on luxury goods recently, and with the return of tax-free shopping, this will only increase. Is your brand or business equipped to appeal to international needs and wants?
It can be very important to understand Arab culture, Arab shoppers’ needs, and how to make your business welcoming, to ensure you fully benefit from the upcoming changes. We’re here to help with that.
Our Cultural Awareness Training Course is fully designed to help you adapt to changes as they present themselves and make sure you utilise an understanding of Arab culture to help you. For more information, visit our website at https://www.londonarabia.co.uk/middle-east-cultural-awareness-training or email info@londonarabia.com to schedule your free consultation.
