Chinese tourists are returning to London after restrictions on travel were lifted, but they are spending dramatically less than before the pandemic.

The New West End Company, which represents stores and hotels in the busy London district, has found that tourists are increasingly aware that the UK no longer offers tax-free shopping post-Brexit, and are diverting their buying to elsewhere in Europe. 

It means that even when visitor numbers to the British capital increase, sales are not keeping up. 

The number of Chinese visitors to London was just 2 per cent shy of 2019 levels in September, but their spending was down 58 per cent, the group said. Overall, the gap between the total of international visitors and their spending in the capital compared to 2019 has grown from one percentage point in the first quarter to 31 percentage points in the third. 

“No tax-free shopping is a major disadvantage in the competition to attract high-spending international visitors,” said Michael Ward, managing director of Harrods, who added that the impact extends far beyond the retail sector in London.

Three-quarters of international visitors to West End said they would spend more if they were able to claim back the 20 per cent value-added tax (VAT) on their purchases. Visitors from outside the EU were able to reclaim tax paid on their spending until January 2021, when the policy expired. 

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Retailers have been clamouring for a U-turn, and members of Parliament debated the situation in September, with a call for the government to commission an independent review. There “could be a hugely positive and almost instantaneous win for the UK economy” should the tax reimbursement be reintroduced, Conservative MP Geoffrey Clifton-Brown said at the time. 

In August, 350 business leaders, including heads of British Airways, Marks & Spencer Group, Burberry Group and Mulberry Group, signed an open letter to the Chancellor of the Exchequer, calling the so-called tourist tax “a spectacular own goal”.

As part of the campaign, the Centre for Economics and Business Research said that the lack of VAT refunds is costing the UK £10.7 billion (S$17.8 billion) in lost gross domestic product and two million extra visitors a year.

“The absence of tax-free shopping is hindering growth and impacting consumer spending,” said Dee Corsi, chief executive of the New West End Company. “Whilst tourists cut back in the UK, continental Europe reaps the benefits.” BLOOMBERG