London’s luxury retailers worry the city is losing its appeal as a shopping destination, with U.S., Chinese, and Gulf tourists increasingly favoring Paris and Milan due to tax incentives.
As UK finance minister Jeremy Hunt prepares to deliver the government’s budget statement, the industry is pressing for a reinstatement of tax-free shopping for overseas visitors, a benefit that ended in 2020 after Brexit.
Prominent retailers, including Harrods, Harvey Nichols, Cadogan Estates, and The Lanesborough Hotel, have joined forces with hundreds of businesses to lobby Hunt to restore the sales-tax exemption.
“We’ve heard from some brands that they’re prioritising Paris for investment in stores,” said Steve Medway, CEO of the Knightsbridge and King’s Road Partnerships. “They’re seeing the sales.”
International visitors contribute £28.4 billion ($34.5 billion) annually to the UK GDP, with Knightsbridge and King’s Road being key areas.
Data from Global Blue, a tax refund company, shows spending by U.S. visitors to Britain has only returned to pre-pandemic levels, while spending in France, Spain, and Italy has significantly exceeded those levels.
Meanwhile, British shoppers are also spending more in the EU, where they can reclaim value-added tax (VAT) on purchases.
Industry executives argue that some luxury brands are investing more in their French stores than in their London outlets due to tax incentives, stressing the need for the UK to reinstate VAT-free shopping to stay competitive.
They caution that failing to reinstate the tax break could hurt the broader tourism ecosystem, affecting hotels, restaurants, transport, and cultural institutions.
The government contends that tourists can still enjoy UK tax-free shopping by shipping goods directly overseas and maintains that scrapping VAT-free shopping raises revenue without significantly impacting tourism.
Major British luxury brands like Burberry have warned that London is losing its competitive edge due to the VAT rule. Mulberry, a handbag maker, cited the end of VAT-free shopping as a key reason for closing its Bond Street store.
Sarah Jaconelli, communications director for the New West End Company, described the policy as a “massive own goal” for the UK, noting that tourists can effectively get a 20% discount by shopping in Europe instead.
Global Blue data reveals that American visitors’ spending in the UK reached 101% of 2019 levels in 2022, while spending in France and Italy soared to 256% and 226%, respectively.
For Gulf state visitors (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE), spending in the UK is still at just 65% of 2019 levels, compared to 198% in France, 166% in Italy, and 158% in Spain.
A survey by Global Blue of 10,000 Chinese tourists who visited Europe in 2019 showed that Britain’s appeal is fading. It was the second most popular destination behind France among large European countries in 2019, but only 42% now plan to visit, down from 70%.
“The Chinese will be the most critical demographic to watch because they’ve always been the most price-sensitive,” Medway emphasized. “That’s why tax-free was so important for them, and now we are the only country in Europe that doesn’t offer it.”
Harrods’ managing director, Michael Ward, warned that without action, the effects will spread beyond stores, with hotels and restaurants already noticing fewer international shoppers.
Cadogan, a major property owner in west London’s Chelsea and Knightsbridge districts, called on the government to take action, with Chief Executive Hugh Seaborn stating, “We are now at a distinct and unnecessary disadvantage to our neighboring EU cities.”
Chinese shopper Hang Hen, 22, shopping on New Bond Street, noted, “Maybe I’ll keep much more money to go to France?”
London’s luxury sector urges immediate government action to restore its competitive edge and regain its status as a premier global shopping destination.
