The end of the ‘tourist tax’ is forcing thousands of consumers to leave London for the EU

Thousands of tourists who came to the UK for duty-free shopping are diverting to shops in Paris, Milan and Madrid after the UK scrapped incentives due to Brexit.
A new analysis shows that 162 thousand tourists from outside the EU In 2019 they sought to withdraw VAT – sales tax – exclusively in Britain. A fifth of these tourists now claim discounts in other parts of the EU, where the tax break still applies.

The UK is set to end tax relief in 2021 and strongly opposes it lobby Retail and other establishments linked to the tourism sector.

34,000 tourists switched their duty-free purchases from Britain. 2,900 euros ($3,622) per person in 2019 3,800 euros in 2023According to Global Blue, a Swiss-based consultancy that tracks passport numbers.

France and Italy are the most beneficiary countries, attracting more than two-thirds of these travelers, with the Spanish retail sector close behind.

“The continued absence of the duty-free regime will certainly affect Selfridges’ international sales,” said Andrew Keith, the department store’s UK CEO.

Download one Free spreadsheet to calculate your fixed income investments And avoid low yielding assets

Political controversy

Britain has refused to bring back tax cuts after leaving the EU, according to New West End, a group representing London’s tourism industry.

However, the UK government believes its policy has improved its liquidity and not deterred tourists. It commissioned an independent review from the Office for Budget Responsibility (OBR), a government spending watchdog, in 2020 and again this year to try to prove this.

The OBR estimated a £462 million ($579 million) benefit to the public purse last year, taking into account the impact on tourism and migrant spending – rising by 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. The city’s famous Oxford Street is back.

With national elections due later this year, some luxury retailers are unlikely to change course.

“Will the Prime Minister stand up and say ‘I made a mistake’?” Michael Ward, managing director of renowned department store Harrods, said during the World Retail Congress in Paris in April. “I highly doubt it.”

Opposition Labor is expected to return to power and tax cuts are “not on their agenda”, Ward said.

Other retailers are still debating the case.

“If British brands want to invest in jobs, shops and people, they need to encourage overseas customers to spend money in the UK,” said Thierry Andreetta, chief executive of British fashion giant Mulberry Group. The struggling company reported a 4% fall in UK sales in the last 13 weeks of 2023, compared with the previous year, due to a lack of VAT-exempt purchases.

“There’s a missed opportunity,” said Paul Barnes, CEO of the International Retail Trade Association. “Visitors are as high as the rest of Europe at the moment, but they’re not spending – that’s the difference.”

Global Blue’s data excludes Chinese buyers, as their numbers are less than half their pre-Covid levels. Most of the tourists included in the data came from the Middle East (33%) and America (19%) group of countries.