London is no longer a favourite among shoppers, with tax shopping being the main reason for this change. Instead, nationals of countries outside the EU, are increasingly visiting Paris, Milan and Madrid, especially after the UK scrapped tax-free shopping following Brexit.

Some 162,000 tourists required compensation for VAT sales tax in the UK in 2019, and now, one-fifth of those tourists are taking advantage of rebates in the EU, where the tax break is still effective, SchengenVisaInfo reports.

The tax break enables visitors to refund the money they pay for the services they receive, considering they are not EU residents or citizens.

Brexit Prompts Increased Spending for Foreign Tourists to EU

According to Global Blue, a Switzerland-based tax rebate provider, tourists are spending more money in the EU, with some 34,000 tourists spending an average of €3,800 per person in 2023, up by 31 per cent compared to 2019 when spending was €2,900 per person.

The two countries with the highest share of foreign spenders are France and Italy, with two-thirds of those visiting the EU for shopping purposes, spending their money here. Spain’s retail sector is also witnessing a surge.

The continued absence of a tax-free scheme is certainly impacting international sales at Selfridges. 

UK’s Lack of Initiative to Bring Back Tax Break Post-Brexit Is Affecting Living Costs

New West End Company, a lobby group representing London as a tourist destination, claims that the resistance to bring back the tax break after 2020, has cost the city much more expensive living costs.

The Office for Budget Responsibility (OBR), which is a government spending watchdog, was commissioned for an independent analysis in 2020 and 2024. The authority estimates that €537 million will benefit the public finances from last year, as the Economic Times reports.

If we want British brands to be able to invest in jobs, shops and people we need to entice foreign shoppers to spend money in the UK. That requires offering them the same tax-free policy they enjoy in the rest of the world. 

Data from Global Blue reveals that the majority of spenders come from countries in the Middle East, representing 33 per cent of the total, followed by Americans (19 per cent). On the other hand, Chinese shoppers, who used to be top spenders, have been affected by the COVID-19 pandemic, as their numbers are less than half of those recorded pre-outbreak of Coronavirus.

Last year, luxury and fashion brands in London called on the government to bring back the tax break, warning of shoppers drifting away to the EU. The measure has cost losses in businesses as well as caused some retailers to close some of their stores. The non-EU shoppers in the UK are required to pay a 20 per cent tax for items purchased in the country.