Research carried out on behalf of revenue generating payments company Planet¹ reveals the full impact on tourism if the UK government abolishes the UK’s VAT Retail Export Scheme. In a stark warning, withdrawing the scheme will damage inbound tourism to the UK from wealthy Chinese tourists – known as Power and Elite shoppers². They account for 83% of total spend by Chinese shoppers despite representing only 28% of all Chinese shoppers.

The report, conducted by Chinese Digital Marketing Agency, Alarice, surveyed 850 respondents and using a segmentation model of international spenders based on analysis of millions of data points, categorised them into three segments: Elite, Power and Core² based on it found that 42% of Chinese tourists who were planning to travel to the UK in 2021 would visit other European destinations instead while 78% of Elite Chinese shoppers would be put off from travelling to the UK altogether.

This insight provides yet more proof that retailers, hoteliers, restauranteurs and caterers across the UK will lose out, sparking job losses as high as 140,000 across the UK3. Total annual spending by international visitors in the UK is over £22 billion. The travel and tourism industry employs 1.5m people or 5% of the workforce. This decision would be counter-productive by reducing tourism and therefore put significant volumes of livelihoods at risk.

According to the UK Government, the Tax Free shopping exclusively favours London’s Retail sector.  Planet’s research shows that as few as 11% of Chinese tourists only visit London whilst in the UK. Other cities they also visited includes Manchester (10%), Edinburgh (10%) and Oxford (7%), boosting the regional economy and securing jobs.

The UK Government claims that ending Tax Free shopping will save the Treasury £1 billion. However, this fails to account for the value that Tax Free shopping delivers to the UK’s economy, which according to analysis by the CEBR is estimated to be £3.5 billion. The Planet survey found that whilst Chinese tourists enjoy visiting the UK’s sights and attractions, 75% of respondents said they also intend to shop as part of their trip however.

Put simply, removing the ability for high spending Chinese shoppers to take their Tax Free goods home in their luggage would make the UK a less attractive location in contrast to the rest of Europe.

Planet’s analysis of the data shows that 78% of Elite Chinese shoppers will be put off from travelling to the UK. Power and Core shoppers also tell us that the changes will have a negative impact on the UK as their choice of destination. 59% and 60% respectively told us it will ‘likely’ or ‘very likely’ influence their decision.

Chinese shoppers will also spend less on shopping whilst in the UK. Beyond this, 74% of Elite Chinese shoppers said they would either not spend at all, or would spend up to 50% less than originally intended. This rises to 83% for Power shoppers and 78% for Core shoppers.

Changes to the scheme also have a significant impact on planned length of stay

The changes to the scheme also have a significant impact on planned length of stay. A staggering 93% of Elite shoppers would choose to either not visit the UK, or will spend up to 50% less time in the UK than originally intended. This compares to 88% of Power shoppers and 92% of Core shoppers.

Finally, with Tax Free shopping increasingly going digital across the world, we asked Chinese shoppers about the impact a digital tax refund process would have on their shopping intentions. 69% of consumers suggested that if this was the case, it would increase the likelihood of further spend.

The research makes it clear: retain the scheme and upgrade it to a digital Tax Free system to generate more revenue and protect jobs at a time when this is needed more than ever. "Global Britain" needs to live up to its billing as being a competitive and world class destination for businesses and visitors alike.

Norman McKenzie-Richmond, Chairman of Together for Tourism Alliance, says:

"Abolishing Tax Free shopping will abolish shopping tourism and risk a loss of £10 billion in tourist sales to EU neighbours, which would affect the local economies in every region of the UK, not just London.

"Our EU neighbours are already capitalising on the proposed changes. France has announced that from 1 January, the very day that the UK’s proposed changes are set to come into effect, it will reduce the threshold on tax-free purchases from €175 to €100, in a direct attempt to generate a trading advantage over the UK."

David Perrotta, UK Country Manager at Planet, says:

"These are the toughest times many of the UK's merchants across retail, hospitality and food & beverage sectors have faced for years. With COVID-19 rearing its ugly head for a second wave in the run-up to the peak Christmas trading season, businesses across the UK face a challenging end to the year.

"Many businesses depend on international shoppers. Some retailers rely on their spend for up to 60% of their annual revenues, with the Chinese leading the way in terms of numbers and spend. We anticipate markets to start recovering next year but with the changes to the UK VAT Retail Export Scheme, our research clearly shows the UK stands to lose out as Chinese shoppers are set to spurn the UK in favour of France and Italy as their choice of shopping destination.

"But it doesn’t have to be. We're calling on the government to reverse the decision to abolish UK VAT RES. We’re asking the government to work with the industry to implement a digital system to ensure UK tourism is competitive with other European markets."