Despite a rise in international visitors, London’s retailers are forecasting substantial financial losses due to the UK’s removal of tax-free shopping for tourists.
- The previous Conservative government eliminated tax-free shopping to support public finances, putting the UK at a disadvantage compared to the EU.
- Retailers argue that the loss of tax-free shopping negatively impacts the broader tourism ecosystem, including restaurants and hotels.
- As Chancellor Rachel Reeves prepares her first budget, the New West End Company urges reinstating tax-free shopping to level the playing field with Europe.
- Without policy changes, the UK’s attractiveness as a top shopping destination is at risk, impacting London’s retail and tourism sectors.
Despite an increase in international visitors, retailers in London’s West End are bracing for a significant hit to their finances, expecting losses greater than the £400 million experienced in 2023. This downturn is attributed to the removal of tax-free shopping, a policy change made by Jeremy Hunt during his tenure as chancellor under the previous Conservative government. This decision was part of broader efforts to stabilize public finances.
The absence of tax-free shopping creates a competitive disadvantage for the UK, particularly when juxtaposed with the European Union’s system where tourists benefit from VAT refunds on eligible purchases. Prominent voices in the retail sector, such as Dee Corsi, Chief Executive of the New West End Company, have been vocal about the ripple effects of the so-called ‘tourist tax.’ According to Corsi, ‘The loss of £400 million in unrealized sales last year in the West End alone is just a small part of this story. Fewer sales on the shop floor means fewer tourists in restaurants and hotels.’
Chancellor Rachel Reeves, in light of her forthcoming budget announcement, faces mounting pressure from retail associations like the New West End Company, which represents a network of 600 retailers, hotels, and restaurants in key shopping districts including Bond Street and Oxford Street. The association has calculated the unrealized losses by analyzing passenger figures at London’s airports and correlating these with international transaction data in the West End. These calculations are benchmarked against the pre-policy change year of 2019.
While international arrivals in London rose by 3% in the first half of 2024 compared to the same period in 2019, spending in the city fell by 12%. This stark contrast is further highlighted when considering the European Union, which saw a 36% rise in overseas spending, underscoring the competitive disadvantage faced by UK retailers. The New West End Company asserts that restoring tax-free shopping is critical for revitalizing the UK’s retail and tourism sectors, thus supporting economic growth.
Failure to reinstate tax-free shopping could further diminish the UK’s standing as a premier destination for both tourism and shopping, with the potential to trigger broader economic repercussions for London and the country. The ongoing debate over the ‘tourist tax’ emphasizes the challenges facing the retail industry in a post-Brexit, post-pandemic UK.
The decision to eliminate tax-free shopping continues to place London’s retail sector at a disadvantage, calling for reconsideration to maintain the city’s global retail allure.
