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CORDER’S COLUMN: VAT man must change course

rob-corder

I was always a remainer. 

Not because of technicalities over trade, fishing or state aid, but because I thought that the UK benefits from both importing the wisdom of the rest of Europe and exporting our own.

That requires giving up a degree of sovereignty, but I saw not evidence that securing more power for Westminster would make the quality of our decisions any better.

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So it has proved.

Yesterday I wrote about a change to the way VAT is charged by retailers that will do profound damage to this country’s economy.

The current situation across the European Union is that sales taxes, in our case VAT, can be claimed back by non-EU citizens as they head back to their home countries with their prized new possessions: a Burberry trench coat, a Chanel handbag, an Audemars Piguet Royal Oak.

On the way through the airport, wealthy tourists from China, the Middle East, America and elsewhere present their receipts at a refund counter and get the tax back immediately.

This system is being replaced in the UK — and the UK alone — next January with a plan that will require visitors to mail or courier any of their purchases to their home country rather than take them with them in their hand luggage. If they dispatch the goods, the VAT is taken off at source by the retailer.

Sounds reasonable, right? VAT is still removed, and all the overseas customer needs to do is trust FedEx or UPS to handle the logistics. A statement from the government on the plan even extols its virtues: “Overseas visitors will still be able to buy items VAT-free in store and have them sent direct to their overseas addresses, while the costly system of claiming VAT refunds on items they take home in their luggage will be ended,” HM Treasury says.

This misses two very real and practical issues and one at least one more emotional, or behavioral point.

First, sending luxury items like watches to places like Beijing or Riyadh is risky. I lived for many years in the Middle East, and the chances of getting even a letter delivered were slim. There is barely a working system of addresses, let alone a last mile postal service that will reach people. We literally had to describe our addresses using landmarks. I would not want my mother to have sent me a birthday card, let along telling a jeweller to dispatch a £10,000 timepiece.

Secondly, customs in these countries will want a declaration of value for any incoming goods, and there is often duty to be paid on high ticket items. A saving of 20% by taking off VAT can be wiped out with local taxes.

Thirdly, and more emotionally, most people do not want to be separated from the watch of their dreams. They bought it, they own it, they want it on their wrist or their in carry-on luggage. This is precious cargo that needs to be handled personally.

This adds up to a conclusion that highly savvy shoppers looking for the best possible price will simply spend their money elsewhere: Paris, Geneva, Amsterdam or Berlin. Why would they not? A £10,000 watch will be £2,000 cheaper on the Continent.

The higher the price, the greater the savings, so Bond Street boutiques specialising in the most exclusive and pricey items will suffer most in comparison to other European shopping destinations.

This comes at a time when Central London is already suffering more than any other part of the country. Sales outside the capital (apart from other tourist hot spots), are broadly back to 2019 levels, but London remains 50% down for luxury watch brands.

Lobbying is already underway to reverse this hugely damaging change, and it must succeed.

Destroying the economic viability of Bond Street, Knightsbridge and Chelsea boutiques might seem like a niche issue, but luxury retail is one of this country’s great economic success stories, and must be preserved.

4 Comments

  1. Absolutely, unthought out and mis-guided, half baked idea, that’s just my opinion, but I’m sure 99.99% of the Watch and Jewellery trade feel the same. Hope I made my feelings clear enough!
    Simon Oxby.

  2. If there’s a way to be found for the Tory posh schoolboy tofs to screw things up for people they will find it, these are the very same little lord toffs that pay top accountant’s to enable them to pay as little to the tax man as possible while finding ways to force every one else to pay as much tax as can be squeezed out of them tourists included, they should be finding ways to encourage tourism spending not destroying the goose the gives us the golden eggs, typicall short sighted Tory tax policy, this present cabinet are truly distructive, the tourisum trade has suffered enough this year with covid 19, now the Torys are giving it one more kick a man in the teeth while hes down.k

  3. Fear not, the plummeting British pound after a no-deal Brexit will ensure they still visit!

    Totally agree Rob. This has to be the most inept govt in living memory.

  4. Thirdly, and more emotionally, most people do not want to be separated from the watch of their dreams. They bought it, they own it, they want it on their wrist or their in carry-on luggage. This is precious cargo that needs to be handled personally….

    Exactly! As an American, with the above in mind, I would never consider buying any luxury goods in the UK, unlike past years, strictly due to this policy. I always take my goods with me after purchase, and there is no valid reason otherwise. In terms of watches, I only visit my friends in Geneva because the process to return there is more than simple. But what else do you expect from the wise, industrious Swiss?

    By the way, while visiting near my home in California. I met Nigel Farage by accident, and we spend about an hour together discussing Brexit. My grandfather is from Sunderland, and the rest of the family from London and Manchester. Speaking as a veteran entrepreneur, 3 companies of my own, plus a new Asian airline, Brexit is absolutely necessary for a prosperous and independent UK future!

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Rob Corder

The author Rob Corder