Written evidence submitted by Fashion Roundtable
DCMS Select Committee - Call for Evidence Submission - Fashion Roundtable
1. What needs to be done to re-establish the UK as a holiday destination for international travellers?
- What should Government and the tourism boards be doing to support the inbound tourism industry in its recovery?
Re-introduction of the VAT Retail Export scheme. A government decision to end VAT-free shopping for international visitors remains a key concern for luxury fashion retailers. According to a report from the Centre for Economics and Business Research (CEBR), ending the VAT Retail Export Scheme would result in up to forty-one thousand job losses, reduce non-EU visitors to the UK by 7.3 per cent, and result in an estimated total decrease in spending by tourists by up to £1.8 billion.
Reintroduction of airside tax-free concession. The withdrawal of this concession could threaten the viability of the UK’s regional airports, at a time when they are already struggling to cope with the impact of the pandemic. In 2019 75% of airside retail sales were VAT-free, accounting for £150 million in sales and supporting 3,000 jobs across London airports. For many airports – especially smaller, regional ones – VAT-free sales comprise up to 40% of revenue.
● For every pound spent through the VAT RES scheme, HMT recouped £1.90 from other sources of revenue, including income tax, national insurance and corporate taxes
● Tax-free shopping supports £3.5 billion worth of tax-free retail sales, and if extended to EU visitors, this would rise to around £7 billion
- What will the impact on the UK’s hospitality, cultural and heritage sectors be if inbound tourism is slow to recover to pre-pandemic levels?
Significant loss of jobs and spending will put these sectors at great risk and could be ruinous as they have already been reeling from the impact of Covid-19.
CEBR undertook an analysis based on customer research carried out in late September 2019. The research looked at the possible behaviours of visitors including ‘heavy hitters’ (parties responsible for the bulk of VAT RES expenditure, with an average spend of 53,900 euros in 2019) should the scheme be scrapped. In this scenario:
● The number of non-EU visitors would decrease by 31%, or 4.96 million
● The total fall in tourist spending would stand at £6 billion
● GVA would fall by £9.3 billion, with 138,000 jobs lost
● Tax revenues would be net reduced by £3.5 billion
To give an idea of the impact outside of London, the Association of International Retail (AIR) gave estimates on the amount of tax-free shopping and jobs supported across UK cities (these figures represent the loss of retail sales alone and no additional losses of revenue and jobs across the wider visitor economy):
● Edinburgh - £92 million and 1,800 jobs
● Manchester - £60 million and 1,200 jobs
● Liverpool - £32 million and 640 jobs
● Leeds - £18 million and 360 jobs
● Birmingham - £14 million and 280 jobs
In terms of digitising the claim-validation system, the Government could use the current lull in international travel to undertake this work and bring the UK in-line with all other European countries, which have already digitised their systems. According to AIR, the main refund companies have already offered to install a digital system at no cost to the Government within 12 months.
2. Does the Tourism Recovery Plan go far enough to support the industry’s recovery from the Covid-19 pandemic?
Whilst the Tourism Recovery Plan lays out the varying levels and provisions of business support, especially around the recovery from COVID-19, this support fails to take into account the effect on business of the loss of the VAT Res scheme, including a significant loss in income and jobs.
Despite pointing to the need for recovery support in London due to overseas tourists spending £7.4 billion less on goods in 2020, the recovery plan has not focused on providing an environment for the retail sector to recuperate. Providing support to individual businesses to survive the worst impacts of the pandemic and come out the other side is needed, but will not be enough if the visitors and tourists are not given the right incentives to spend.
- What are the biggest challenges to delivering the plan?
With regards to retail, the biggest challenges will be in ensuring benefits to tourists to spend when visiting the UK are maintained, if the reintroduction of the VAT Res is not considered.
3. What should the UK be doing to maintain its status as a ‘soft power superpower’ and further promote its culture and heritage on the global stage?
Creating the environment for tourism to continue to thrive, by reintroducing measures that attract international and European visitors.
- How can the UK capitalise on its exit from the European Union?
Extending VAT RES to EU visitors to the UK and the digitisation of the VAT reclaiming process. With many European destinations served from the UK’s regional airports, reintroducing and extending VAT RES could incentivise EU citizens to visit other parts of the UK, bringing spending with them. CEBR has run a cost-benefit analysis of extending VAT RES to EU visitors, which shows that this decision would raise more tax revenue than it loses:
● EU visitors to the UK spend £2.7 billion a year on shopping.
● If VAT RES were extended to EU visitors, the average cost of a trip to the UK would decrease by 2.9% and there would be a £312 million drop in VAT revenues.
● However, EU visitors would increase by 3.8% or 948,000, bringing an additional £590 – 890 million as a result of the income taxes, national insurance, indirect taxes, corporate taxes and rates which would be collected as a result of additional tourist spend.
● GVA would increase by between £900 million and £1.36 billion and 13,500 – 20,200 jobs would be added.
● Extending VAT RES would therefore raise an additional £79 – 276 million in net additional taxes.
- What are the biggest threats to the status of ‘soft power superpower’?
If unable to successfully share and exchange culture and cultural benefits, there are limits to convincing others of power and importance. Soft power comes from a sense of specialness a place, person or location has which merits attention and respect. The UK has traditionally been the launching point for global brands into Europe. This generates a rise in perception as a key destination for tourists and their spending power.
Look at Frieze Week in September and you will see a high net worth global spender who buys art, fashion and spends money on hotels and hospitality, and the subsidiary business that engenders. Frieze Week is a clear example of soft power at play. However, all buyers, on any income do price comparisons and for any larger buy they will only shop at the best price. So if a consumer is going to the EU anyway, they will now spend their money there and stay there for longer than in the UK.
With time, this shift moves from one year to another, to a way that larger spending tourists and consumers shop. This impacts retail, at a time when bricks and mortar retailers are suffering and that in turn impacts the presence, global reputation and soft power, as footfall dwindles even further. We will see tourism numbers and the length of their stay in the UK dwindle as a result of this decision, It makes the UK uncompetitive and unattractive. This is highly concerning.
Soft power cannot be judged in a spreadsheet, but can be analysed by cultural and commercial factors and those with the skill-set to analyse that data. These are not the same skills as those in HM Treasury who erroneously decided to end the VAT RES and are merely looking at a certain number of factors to make what was clearly a flawed and rushed decision. We are also seeing more UK dual nationals buying their high end consumer goods in the EU, so all of these factors lead to a diminishing of the value of London and the UK as the jewel in the crown of the world as one of the leading capital cities and nations for creative, and commercial soft power on the global stage.