Retailers in London’s West End have suffered a £220m loss in unrealized sales in the first half of 2024, following the UK government’s decision to scrap tax-free shopping for overseas visitors, new research from the New West End Company.
Despite an increase in international visitors, the area’s retailers are expected to face a bigger financial hit this year than the estimated £400m loss by 2023.
The previous Conservative government abolished tax-free shopping under plans by Jeremy Hunt, the then Chancellor, as part of efforts to shore up the public finances. Retailers say the policy puts Britain at a competitive disadvantage compared to the European Union, where tourists can receive VAT refunds on purchases above a certain threshold.
Dee Corsi, CEO of the New West End Company, highlighted the wider implications of the so-called ‘tourist tax’, pointing out its damaging effects on the entire tourism ecosystem. “The loss of £400 million in unrealized sales last year in the West End alone is only a small part of this story. Less turnover on the shop floor means fewer tourists in restaurants and hotels,” says Corsi. “If the government is serious about growing the country, tax-free shopping offers a rare, golden opportunity to do so.”
These figures will emerge when Chancellor Rachel Reeves prepares her first budget at the end of October. Reeves has warned that tough decisions on tax increases and spending cuts are needed to tackle the public finances, and Labor has said tax-free shopping for tourists will not recover. The party is focused on increasing revenues without increasing income tax, VAT or national insurance.
The New West End Company, which represents 600 retailers, hotels and restaurants in popular shopping areas such as Bond Street, Oxford Street, Regent Street and Mayfair, calculates unrealized losses by comparing passenger arrivals at London airports with payment data for international transactions in the West End. These estimates have been compared with figures from 2019, when tax-free shopping was still available and £500m of discounts were processed, the Office for Budget Responsibility said.
While overall visitor numbers to London increased by 3% in the first half of 2024 compared to the same period in 2019, spending fell by 12%. This is in stark contrast to a 36% increase in foreign spending across the European Union, highlighting the competitive disadvantage faced by British retailers.
The New West End Company is urging the government to reintroduce tax-free shopping, arguing it would level the playing field for British businesses compared to their European counterparts. “Abolishing tax-free shopping isn’t just about lost retail sales; it has a cascading effect on the entire tourism and hospitality sector,” the association said. “Restoring the policy would provide a crucial boost to the UK economy at a time when growth is urgently needed.”
As pressure mounts on the government to reconsider its position, the impact of the tourist tax on London’s retail sector underlines the challenges facing businesses trying to attract international spend in a post-Brexit, post-pandemic landscape. Without policy changes, Britain’s position as a top shopping and tourism destination could decline further, with significant economic consequences for the capital and beyond.