This summer, McDonough offered a 20% discount to American and Australian shoppers, aiming to alleviate the impact of the 2020 removal of VAT-free shopping for tourists, a policy introduced by then-Chancellor Rishi Sunak.
The luxury industry has been vocal about the negative impact of this policy. McDonough noted a significant drop in American tourists, who represent her second-largest market. The 20% discount successfully attracted foreign customers back to her boutique in London’s Sloane Square. “It’s amazing how many people were then brought back [with the discount],” she said.
The removal of VAT-free shopping has caused tourist spending to shift to other European countries such as France and Spain, while the UK has seen a decline. McDonough argues that luxury shopping is an essential draw for tourists, with broader economic benefits. “Luxury is not seen as important in this country,” she stated, highlighting the ripple effect it has on other sectors, including hospitality and tourism.
While the Office for Budget Responsibility estimates that scrapping tax-free shopping will save £540 million over the next two years, McDonough believes Labour should reconsider reinstating the perk to boost economic growth. She emphasised that it is not just about luxury goods but the wider experience and spending associated with tourism.
McDonough, who founded her business in the 1980s, also expressed concerns about the government’s focus on large businesses at the expense of smaller enterprises like hers. She called for reduced red tape and more support for young entrepreneurs, urging politicians to foster an environment that encourages risk-taking and business growth.
A Treasury spokesperson reiterated that the government faces tough decisions in the upcoming budget, as it aims to address a £22 billion shortfall in the public finances left by the previous administration.
McDonough’s comments underscore the broader implications of the tourist tax on the UK’s economy, highlighting the need for a balanced approach that supports both large and small businesses while encouraging tourism.
