Despite a rise in international visitors, London’s retailers are confronting a substantial financial setback this year. The West End is poised to experience an even greater impact than the previously estimated £400 million loss in 2023, attributing this to the removal of tax-free shopping for tourists.
The previous Conservative government, under then-chancellor Jeremy Hunt, eliminated tax-free shopping as part of measures to support public finances. However, retailers argue that this move puts the UK at a competitive disadvantage compared to the European Union, where tourists benefit from VAT refunds on qualifying purchases. Dee Corsi, Chief Executive of the New West End Company, underscored the wider ramifications of the ‘tourist tax,’ citing its adverse effects on the broader tourism ecosystem. ‘The loss of £400 million in unrealised sales last year in the West End alone is just a small part of this story,’ Corsi said. ‘Fewer sales on the shop floor means fewer tourists in restaurants and hotels.’
These figures emerge as Chancellor Rachel Reeves prepares for her first budget at the end of October. Reeves has indicated that difficult decisions regarding tax increases and spending cuts are necessary to address public finances, stating that Labour will not reinstate tax-free shopping for tourists. The party aims to increase revenue without raising income tax, VAT, or national insurance.
The New West End Company, representing 600 retailers, hotels, and restaurants in major shopping areas like Bond Street, Oxford Street, Regent Street, and Mayfair, calculates the unrealised losses by comparing passenger arrivals at London’s airports with international payment data in the West End. These estimates are benchmarked against 2019 figures, when tax-free shopping was still available, and £500 million in discounts were processed, according to the Office for Budget Responsibility. While overall visitor numbers to London have risen by 3% in the first half of 2024 compared to the same period in 2019, spending has dropped by 12%. This contrasts sharply with a 36% increase in overseas spending across the European Union, highlighting the competitive disadvantage faced by UK retailers.
The New West End Company is calling on the government to reinstate tax-free shopping to level the playing field for British businesses. ‘The removal of tax-free shopping is not just about lost retail sales; it has a cascading effect on the entire tourism and hospitality sectors,’ the association stated. ‘Reinstating the policy would provide a vital boost to the UK economy at a time when growth is urgently needed.’ As government reluctance persists, the impact of the tourist tax on London’s retail sector highlights the challenges businesses face in attracting international spending in a post-Brexit, post-pandemic environment.
Without policy changes, the UK’s standing as a leading destination for shopping and tourism could further diminish, with considerable economic repercussions for the capital and beyond.
The removal of tax-free shopping continues to cast a long shadow over London’s retail and tourism sectors. With retailers and allied businesses pushing for policy reassessment, the government’s stance on this issue will significantly influence the economic trajectory of the capital.
