After the ‘tourist tax’ shoppers leave London for the EU

Thousands of tourists who visited the UK for duty-free shopping are returning to shops in Paris, Milan and Madrid after the UK scrapped incentives after Brexit.

In 2019, 162,000 tourists from outside the EU sought to reclaim VAT – sales tax – in Britain exclusively, new analysis shows.

The United Kingdom is set to end the tax break in 2021 and has resisted strong lobbying from retailers and other companies linked to the tourism industry.

The 34,000 tourists who exchanged duty-free purchases from Britain increased their spending from an average of 2,900 euros per person in 2019 to 3,800 euros in 2023, according to Switzerland-based tax discount provider Global Blue.

France and Italy are the biggest beneficiaries, attracting more than two-thirds of these travelers, while the Spanish retail sector is also gaining momentum.

“The continued absence of the tax relief scheme is certainly affecting Selfridges’ international sales,” said Andrew Keith, CEO of the UK department store chain.

Political controversy

Britain is refusing to bring back tax relief after leaving the European Union Very harmful than the recent cost-of-living crisis, according to the New West End Company, a London lobby group.

However, the UK government believes its policy has boosted the public purse and not deterred tourists. The government commissioned an independent review from the government spending watchdog, the Office for Budget Responsibility, in 2020 and again this year. The agency estimated a £462m benefit to the public purse last financial year, taking into account the impact on tourism and migrant spending – rising to more than half a billion pounds in the current financial year.

Tourism is strong in Britain. Hotel occupancy in London surpassed pre-pandemic levels in December, while 18.5 million passengers passed through Heathrow in the first quarter of the year – an all-time high, according to data from consultancy RSM UK.

With national elections looming later this year, some luxury retailers have abandoned any chance of reversing course.

“If we want British brands to invest in jobs, shops and people, we need to encourage overseas shoppers to spend money in the UK,” said Thierry Andretta, CEO of Mulberry Group. “This requires giving them the same tax-free policy that they enjoy in other parts of the world.”

The British handbag maker, which has struggled in recent years, reported a 4% drop in UK sales in the last 13 weeks of 2023 compared to the previous year, largely due to a lack of VAT-free purchases.