According to a report from the New West End Company (NWEC), wealthy tourists visiting London are reducing their spending due to the end of VAT refunds. The report states that almost 71% of international visitors are spending less as a result of the tax change, leading to a decrease in the percentage of West End spending from international visitors. This decline is significant as it is not solely impacted by the pandemic, as other European cities have experienced a stronger recovery in tourist shopping.
In response to the negative effects on retailers, NWEC, along with 67 other prominent business figures, has written a letter to the Chancellor of the Exchequer, urging them to reconsider the decision to eliminate the perk of VAT-free shopping. The report highlights that 93% of the highest spenders among visitors are holding back on their purchases, stating that they would buy more if the VAT Retail Export Scheme (VAT RES) was still in place.
Previously, the West End accounted for 65% of tax-free shopping, which supported a thriving retail, hospitality, and leisure economy. However, the withdrawal of the scheme by the Treasury as Britain left the EU has had detrimental effects. There were initially hopes that the scheme would be extended to EU tourists, positioning Britain as the most appealing shopping destination in Europe. Unfortunately, the scheme ended on December 31, 2020, during the lockdown, preventing non-EU visitors from recovering VAT on their purchases.
NWEC emphasizes that the loss of the VAT RES has resulted in a 20% increase in the cost of goods such as shoes and watches, putting London at a disadvantage compared to cities like Paris and Madrid, which still offer similar schemes for visitors from the US, China, and Gulf Cooperation Council (GCC) countries.
Dee Corsi, the Chief Executive of NWEC, expresses concern about the negative impact of this tourist tax, which is further magnified as international visitors continue to return in larger numbers. The additional 20% cost in London is diverting spending to other cities like Paris and Milan, endangering not only retail but also hotel and leisure spending, and consequently, thousands of jobs.
The report also highlights a discrepancy between the increase in US flights to London (up 37% compared to 2019) and the minimal rise in spending (only a 4% increase). A similar pattern is observed with visitors from GCC countries, where flights have increased by 13%, but spending has decreased by 1%. Conversations with international visitors reveal that nearly three-quarters of them would spend more in London if they were able to claim back VAT.
NWEC concludes by urging the Chancellor to reintroduce tax-free shopping to support Britain. They argue that the reintroduction would benefit retailers and hospitality businesses, as well as attract more international visitors to the country.
Useful links relevant to the article:
1. Tax and Duty Free Shopping Rules
2. Changes to Tax-Free Shopping in the UK
