Submission to the DCMC Select Committee by New West End Company

Promoting Britain Abroad

1. Thank you for giving us the opportunity to contribute to this inquiry.  New West End Company is the Business Improvement District (BID) that represents over 600 retail, hospitality, leisure and property companies in and around Oxford Street, Regent Street Bond Street and Mayfair. The West End is the largest of London’s two formally designated International Centres, with stores ranging from Prada to Primark and attracting a similarly wide range of international visitors.

International visitors are vital for the West End’s future, spending £5 billion in 2019

2. In 2019, International visitors accounted for 25% of the 200 million visits to the West End, but they were responsible for around 50% of all spending, amounting to over £5 billion.  Although visitors from the EU outnumber those from the rest of the world by 2:1, the latter spent on average three times more than the EU visitors.[1] This is partly driven by spending from high value visitors, particularly from the Far East and Middle East.

Shopping in the West End is a major draw for international visitors

3. With one quarter of the 200 million annual visits being made by international visitors and a further quarter by domestic visitors, the West End is by far the most popular tourist attraction in London and the UK.  Its retail offer is matched by world class hotels, restaurants, theatre, galleries and auction houses which together make the West End a global attraction.

4. The Tourism Recovery Plan recognises the importance of London as a gateway for international visitors stating that “London is a global city. Before the pandemic, it was the third most visited city on the planet, welcoming a record-breaking 21.7 million inbound visitors in 2019, accounting for 53% of all visits to the UK, with inbound spend reaching £15.7 billion.”[2]  The West End is a major part of that attraction.  London&Partners, the Mayor’s tourism promotion agency cites research by Mastercard that states that 46.7% of all international visitor spending in London is on shopping[3], suggesting that £7.3 billion is spent on shopping by international visitors.  The West End accounts for around £5 billion of that.[4]

5. COVID-19 has hit hard those cities centre districts throughout the UK that attract significant numbers of international visitors, such as the West End, Knightsbridge and the city centres of Manchester and Edinburgh.  If the Government is to meet its targets within the Tourism Recovery Plan, particularly that of returning international visitor numbers and spending to 2019 levels by the end of 2023, it must recognise that shopping is an important part of the UK’s attraction to international visitors and central to the amount of spending they make.

The attraction of the West End to international visitors, investors and brands

6. The West End International Centre is a major draw for investors together with cutting-edge brands and retail formats which themselves create a global pull for international visitors.  The district is home to over 250 national and European flagship stores. Selfridges has developed a worldwide reputation for the experience it gives to its visitors. Microsoft’s European flagship store on Oxford Circus introduced a new concept in experimental retailing, with experiencing the product taking priority over direct sales.  The web-based clothing company Gymshark is just opening its first high street store on Regent Street, again to enhance and grow its community rather than primarily for direct sales. 

7. Bond Street and Mayfair attracts high spending visitors from around the world with its mix of global luxury brands and galleries. Regent Street is carefully curated to be London’s premier lifestyle destination, housing global fashion retailers and luxury brands alongside the biggest fashion brands and some of the best in beauty, wellbeing and fitness.  These iconic streets are complemented by Oxford Street, the nation’s high street, which is currently undergoing a £150 million public realm transformation with £5 billion capital investments planned by businesses throughout the West End. All will soon benefit from two new Elizabeth Line stations (at Bond Street and Tottenham Court Road) which will link the West End to Heathrow in just over 30 minutes.  

The Tourism Recovery Plan fails to appreciate the central role of shopping and its policy needs

8. It is disappointing, and a serious omission, that in the 60 pages of the Tourism Recovery Plan there is no mention of shopping, either as a motivator for international visitors to choose the UK over other competitor destinations or the central role of retail, either as a motivator to choose to visit the UK and as the major source of spending by international visitors. In the section of the Plan focussing on supporting recovery in London.

9. In the section focussing on supporting recovery in London the Plan says “It is one of the most ‘instagrammed’ places in the world as well with iconic attractions and cityscapes, from Buckingham Palace to the London Eye. London is also home to three of the world’s most visited museums. With its mix of Royal history, world-class culinary scene and rich cultural diversity, London combines quintessential Britishness with the unique character of a city that has been a global cultural hub for centuries.”[5]  There is no mention of shopping or London’s two International Centres.

10. The Plan goes on to say “London, as the main gateway for international visitors coming to the UK, and as a huge draw for many high-spending long-haul markets, is vitally important to the whole of the UK’s competitiveness as a tourism destination. The UK government is committed to spreading the benefits of tourism to all nations and regions of the UK and promoting London’s tourism recovery will be an important part of this wider objective.”  But while the Plan recognises “the huge draw for many high-spending long-haul markets”, its five proposed actions to support London’s international visitor market fail to mention the three key policy issues that are vital to ensure that London remains attractive to these high-spending global travellers and where we are falling behind our international competitor cities:

• The visitor visa system and product
• Tax-free shopping
• Sunday trading

11. We are aware of the submission made to the Inquiry by the Association of International Retail (AIR) on these three policy issues and fully support its recommendations.  Our submission looks at the two biggest markets for these high-spending long haul markets – the Gulf states (GCC states) and China and the Far East.

Proposals to attract high-spending long haul travellers from the GCC states

12. Gulf visitors are very important to the recovery of the international visitor economy.  Although the numbers of visitors from this region are relatively low (800,000 in 2019 out of 16 million non-EU visitors, 5%),[6] they spent around £2.6 billion,[7] or 15% of the total non-EU spending. In 2019 they were responsible for 26% of all tax-free shopping in the UK in 2019.[8]  London competes with Paris for their custom and Gulf State Ambassadors have highlighted to New West End Company that London is falling behind Paris as a preferred destination.

Visitor visas

13. One issue is the visitor visa regime.  The Electronic Visa Waiver Scheme is an important area for improvement to attract high spending visitors from the GCC states. It is a more sophisticated way of assessing risk within markets.  It allows successful applicants to avoid the need for a visitor visa subject to approval by the Home Office. 

14. The Home Office has introduced EVW scheme for visitors from certain Gulf States, but this is falling behind the Schengen equivalent.  The Schengen EVW can be applied for at any time and allows multiple entry during a six-month period. The UK equivalent is only single entry and must be applied for at least 48 hours before departure. This makes it easier and more attractive for high spending visitors from GCC countries to fly to Paris than to London.  We understand that the Schengen EVW will be further improved in 2022.

15. The Government should enhance its EVW scheme in the GCC states so that it at least matches that of Schengen. Enhancing the visitor visa system are not only cost free, but could actually save money for the Home Office since it reduces the amount of time and resources needed to process visa applications. 

Tax free shopping

16. Since Britain became the only European country not to offer tax-free shopping from January 1st 2020, GCC visitors know that shopping in Paris is now up to 20% cheaper than shopping in London.  Given the importance of shopping to GCC visitors (the International Passenger Survey shows that shopping is a key motivator for 51% of visitors from Saudi Arabia and for 41% of visitors from the UAE),[9] ending tax-free shopping is a major additional deterrent to these high spending international visitors choosing to stay in the UK. 

17. With these high spending visitors visiting London less often, spending less time here when they do visit and saving their shopping spending until they are in Paris, is a major blow to the UK’s international visitor sector.  It is probable that the VAT lost by the reduction of spending on hotels, restaurants etc will outstrip any VAT the Government estimates it will raise from ending tax-free shopping.

Sunday trading

18. Middle Eastern visitors are surprised that stores in the West End have to close at 6pm on Sundays.  The Dubai Mall is open 24 hrs a day, 365 days a year.  Competitor shopping districts in New York, Beijing, Tokyo, Milan face no such restrictions.  Opinion surveys of visitors and employees commissioned by New West End Company showed majority support for longer opening hours in London’s two International Centres. Their geographical definition in the London Plan allows them to be added to the existing list of exemptions within the 1994 Sunday Trading Act without impacting on the rest of the country.  It would be a cost-free measure for the Government and New West End Company estimates that it could result in a net increase of £250 million in spending each year.

Proposals to attract high-spending long haul travellers from China

19. Chinese visitors are not just the world’s highest spending tourists,[10] but they are also the biggest potential market for future growth. In 2000 there were 10.5 million Chinese visitors worldwide.  This grew to 149.7 million in 2018 and (in 2019) was predicted to rise to nearly 400 million by 2030. [11] While there is currently a cooling in diplomatic relations, it is important that China (and other Far Eastern countries) continue to be attracted to London. Shopping is the major attraction for Chinese Visitors.  VisitBritain states that “going shopping is the number one activity which most Chinese visits will feature.”[12] In 2019 they formed just 5% of all non-EU visitors but accounted for 32% of all tax-free shopping spend.[13] 

Visitor visas

20. Improvements to the visitor visas product and application process has helped the UK to increase Chinese visitor numbers for 200,000 in 2012 to 800,000 in 2019, outstripping the percentage growth in Schengen countries.  The key issue is to reduce as much as possible the barrier created by needing to apply for a separate UK visa for Chinese visitors to add the UK to their multi-county tour of Europe

21. We support AIR’s proposals for a series of enhancements including introducing a ten-year visa as standard – as the USA and Australia have done – and extending the current visa application sharing pilot with Belgium to other, larger Schengen countries.

22. We also believe that a special visa for the families of Chinese students in the UK would motivate high-value Chinese parents to visit the UK multiple times while their children are studying in the UK.

Tax-free shopping

23. The ending of tax-free shopping is a major blow to London and the UK’s attractiveness to Chinese visitors to Europe.  The Managing Director of one major West End store told New West End Company that the structural change of ending tax free shopping was more damaging than COVID-19.  International travel from China is yet to restart, but we fear that this one policy will have a disproportionately high negative impact on Chinese visitors, both in terms of choosing to visit the UK and on spending when they are here. 

24. When assessing the impact of ending tax-free shopping, the Office for Budget Responsibility estimated an average price elasticity of international visitors of 1.9, meaning that a 20% increase in price (due to ending tax-free shopping) will lead to a fall of 38% in spending.[14]  But evidence shows that Chinese visitors are far more price sensitive and price elasticity is 3.6.[15]  This means that a 20% price increase will lead to a 72% fall in spending.

25. We believe that the Treasury has not assessed the long-term impact of this decision on this growth market and that by ending tax-free shopping it will divert spending by high value visitors – not just on shopping but on all other taxed goods and services – to Paris and other EU competitor destinations.

26. The Treasury and the independent OBR have both admitted that they have not taken account of the indirect impact of this policy,[16] meaning that there is the possibility that this policy could lead to a net loss of VAT, as well as damaging the UK’s global attraction.

27. We therefore support the call by the Chairman of the Treasury Select Committee for an independent assessment of the full impact of ending tax-free shopping.[17]

Wider implications for investment

28. The Inquiry focusses on international visitor economy but rightly highlights the importance of this sector as part of Britain’s soft power attraction. It also cannot be good for the wider UK economy that high-spending visitors from the Gulf States, many of whom are also major overseas investors in a wide range of British economic sectors, are seeing Paris as a more attractive destination than London.

29. Looking specifically at the retail sector, as a direct result of ending tax free shopping, we are aware that a number of the major global brands are revising their investment programmes, diverting investment away from London to those cities where they know their key markets will now shop (e.g. Paris and Milan).  This means that London will deteriorate as a world shopping destination compared with our major European competitors.

30. Ending tax-free shopping also harms the Government’s Levelling-Up Agenda.  London is the shop window for iconic British luxury brands whose production facilities are outside London (e.g. Burberry in the North East, Mulberry in the Midlands, Church’s Shoes in the Midlands, Johnstons of Elgin in Scotland).  These brands rely heavily on tax-sales, particularly since shoppers tend to focus on brands from the country they are visiting but will now divert their spending to brands in Paris or Milan.  This will impact on businesses performance and job numbers outside London, with Walpole (representing Britain’s luxury industries) estimating a loss of up to 5,000 manufacturing jobs across the UK.  London’s retail supply chains run throughout the UK and deterring international visitors from shopping will have an impact throughout the UK.

31. None of these wider implications were taken into account when the Treasury decided to end tax-free shopping.

32. Conclusions and recommendations

33. We fear that the Tourism Recovery Plan does not appreciate the importance of shopping in the recovery of the international visitor economy.  This means that it does not address key policy areas which have made the UK less attractive compared with our continental European competitor destinations.

34. We recommend that the Government:

• Recognises that shopping is a major attraction to international visitors, particularly those from high-spending long haul markets.  
• Understands the need for policies that make the UK attractive as a shopping destination compared with our competitors.
• Enhances the visitor visa system so that it is at least as good as Schengen by addressing issues specific to key markets.
• Reintroduces tax-free shopping (VAT RES) immediately and undertakes an independent assessment of the full impact of ending tax-free shopping.
• Adds the two International Centres to the list of exemptions in the 1994 Sunday Trading Act.

January 2022

Jace Tyrrell

Chief Executive