European luxury shopping sees increased British demand post-Brexit, impacting UK's domestic luxury industry
The introduction of VAT-free shopping in the EU has had a significant impact on the UK luxury market and tourism. Since Brexit, UK shoppers have been eligible for VAT refunds of at least 15-20% on luxury goods in the EU, creating a strong incentive to purchase high-end items in European cities like Paris and Milan instead of the UK.
According to a study by Walpole, the official body representing Britain's luxury sector, luxury exports to the EU were up to 43% lower than they may have been without Brexit. This erosion of the UK's competitive edge in the luxury retail sector is evident in the surge of British spending on VAT-free luxury shopping in the EU. In 2024, British consumers spent €854 million (£730mn) on VAT-free shopping in the EU, a five-fold increase from €169mn in 2021.
Retailers and industry groups argue that the lack of a VAT-free shopping scheme in the UK acts as a deterrent to high-spending international tourists, including EU shoppers who can get tax-free shopping in their own countries but not in the UK. Reinstating VAT-free shopping in the UK could create up to 73,000 jobs and add £3.7 billion to the economy, giving the UK a distinct competitive advantage over other European luxury hubs that currently provide VAT rebates only to non-EU visitors.
The British luxury sector, which supports over 450,000 jobs and contributes £14.6 billion (€16.8bn) to the Exchequer, is heavily reliant on strong links and favorable trading with Europe. The fashion and accessories sector alone incurred a 64% loss due to Brexit. Delays, surprise courier fees, and inconsistent border checks have pushed EU customers to rival European labels, leading to negative reviews for UK brands.
The only way to buy VAT-free goods in the UK is if they are bought online and shipped directly to an address outside the UK. This has led to British shoppers increasingly directing their high-end spending towards brands and stores across the EU. However, more than a third or 34% of luxury shoppers say they are likely to spend the same amount on luxury goods this year, compared to the previous year.
The EU currently produces 74% of global luxury goods, and 62% of those goods are exported outside the EU. The EU market is not replaceable for the British luxury industry, as it is both their biggest customer base and the linchpin of their supply chains. The AIR report states that the increase in British spending on VAT-free shopping in the EU is not just a slight increase in spending, but a whole new shopping-led tourism market spending additionally on hotels, travel, restaurants, etc.
In 2023, there was a 44% spike in visitors from the UK visiting Paris, the highest increase among European tourists. The TikTok-viral Loewe Puzzle Bag, which retails at around €3,600 for the small one and €4,200 for the large one, would offer €700 and €840 VAT returns respectively in the EU. The UK abolished its previous VAT scheme after leaving the EU, making it the only major global shopping destination not offering VAT-free shopping to any international tourists.
In conclusion, the presence of VAT-free shopping in the EU attracts UK luxury shoppers abroad, undermining the UK luxury market and tourism. Reintroducing VAT-free shopping in the UK is seen as a key strategy to regain competitiveness and boost the luxury retail and tourism economy.
- Despite the benefits of VAT-free shopping in the EU, the absence of such a scheme in the UK is seen as a deterrent for high-spending international tourists, impacting the UK's luxury market and tourism industry.
- The luxury shopping behavior of many British consumers has shifted towards the EU, where they can take advantage of VAT-free shopping, creating a new market for luxury goods, travel, and tourism-related expenses.
