UK’s loss is Europe’s gain as overseas visitors put off by tourist tax

European tourist destinations are enjoying a financial boost after attracting wealthy visitors away from the UK by offering a tax break for splashing the cash.

Data from Swiss tourism tax refund company Global Blue suggests international spending in continental Europe has risen sharply since 2019. Analysts estimate the increase to be around 36%.

But while the prospects look sunny for European destinations, the outlook is decidedly gloomy for the UK.

New data suggests Europe is attracting big spending tourists

New data from the New West End Company, a UK business lobby group representing London’s premier shopping destination, found that, despite London’s West End experiencing a 3% increase in international visitor numbers since the pandemic struck, tourist spending fell by nearly 12% in the first half of 2024, compared with the same period in 2019.

The reason Europe’s tourism hotspots are outperforming their UK neighbours, according to many UK businesses, including British luxury fashion company Mulberry’s and upmarket department store Selfridges, is their decision to maintain a tax break that allows tourists to save 20% on luxury purchases, effectively rewarding them for spending when abroad.

The then UK Chancellor, Rishi Sunak, cancelled the 20% tax break in 2020 (the cancellation itself came into force at the beginning of 2021). Closing the incentive was intended to bolster the public purse without deterring tourists. However, UK businesses believe the absence of their own tax inducement is a powerful disincentive for wealthy international visitors to spend big in the UK.

UK business leaders are pushing hard to get the decision reversed, with the New West End Company leading the fight on behalf of retailers.

UK retailers estimate they’ve missed out on hundreds of millions

The company has released data that lays bare the extent of the losses they attribute to the abolition of the tax sweetener. They estimate that the capital’s retailers missed out on £220m (€260.4m) in sales in the first half of 2024, and £400m (€475m) in 2023.

Fears are growing that a persistent “spending gap” has opened between international visitor numbers and their associated spend. London businesses cite data showing that, in 2019, when the UK still offered tax-free shopping, visitor numbers and their spending trended together.

To add euro insult to UK injury, Global Blue estimates that the 34,000 tourists who have shifted their tax-free shopping from the UK, have also ramped up their individual spending, from an average of €2,900 (€2,438) per person in 2019, to €3,800 (€3,195) in 2023.

France and Italy are the big European beneficiaries from the shift, attracting more than two-thirds of the free-spending travellers. Spain’s retail sector is also seeing a boost.