The impact of UK tax-free shopping’s absence on international visitor spending in the last 12 months has been “stark”, according to the New West End Company.

Presenting figures ahead of the government’s Spring Budget (6 March), the body, which represents retailers across London’s key West End shopping district, noted that although there has been a recovery in visitor numbers compared to pre-pandemic levels, spending has lagged.

At its widest in Q3 2023, there was 31 percentage-point gap between international visitors and their associated spending.

The gap also persisted in Q4 2023. Despite visitors over the October-December Golden Quarter period being level with 2019, international spending was actually down 15%.

Full-year figures also reveal an even starker picture with spend levels down 19% despite international visitor numbers in 2023 just 4% below 2019 levels.

The widest spending gap was among affluent visitors from the Gulf, including those from Saudi Arabia, the UAE, Qatar and Kuwait. There were 39% more travellers from the region in the last three months of 2023 compared to the same period in 2019, but spending increased by just 6% — a gap of 33 percentage points.

The full-year figures for this demographic paint a similar picture with visitor numbers up by 20% but spending was down 10% — a gap of 30 percentage points.

That trend is replicated by visitors from other major tourism markets, such as the US. Over the course of 2023, 8% more Americans visited London, but they spent 14% less while there.

These gaps are particularly concerning for the UK as the country is no longer a member of the European Union, where countries such as Italy, France and Spain offer tax-free shopping.

According to Q4 2023 data from Global Blue, US spend in Spain was up 179% compared to 2019, and up 143% in Italy. Similarly, spend from GCC visitors in Q4 2023 was up by 148% in Italy and 132% in France, versus Q4 2019.

Dee Corsi, Chief Executive of the New West End Company, said: “The persistence of a ‘spending gap’ across 2023 should sound alarm bells in Westminster – whilst Italy and France are actively leveraging tax-free shopping as a driver of growth, British businesses trade at a disadvantage.

“Tax-free shopping presents a rare, golden opportunity for the government to inject a shot of growth into the economy, with a tried and tested scheme and a captive audience which, for the first time, would include 450 million EU residents.

“What is more, it would allow us to maximise the returns of existing infrastructure, such as the recent launch of the ETA visa for GCC visitors. The government has already invested in incentivising visitors from the Gulf to travel to the UK – why not incentivise them to spend in our shops, hotels and restaurants while they are here too?”

Corsi added: “We are still within the window to capitalise on this opportunity, with businesses across the country united in their desire to see tax-free shopping reinstated. The news that the OBR will look at the impact data is a welcome acknowledgement, at the highest levels, that our calls are being heard. We are hopeful that the Spring Budget will see these calls answered.”

In 2023, annual sales in the West End exceeded previous forecasts, coming in at £9 billion and underlining the area’s continued resilience in the face of challenging economic headwinds. Despite this, sales were slightly down compared to 2019 levels (-1%), with international sales – a key driver of growth – failing to compensate for squeezed domestic spend.

This is having a knock-on effect on West End businesses. An earlier survey of retail, hospitality, leisure and F&B providers in the district found that 92% said they had been affected by the loss of tax-free shopping, a much higher proportion than those affected by the cost-of-living crisis or inflation (both 58%).

The survey also revealed that businesses were taking proactive measures to mitigate the impact of tax-free shopping. Over half (54%) confirmed their business was reviewing future UK investment strategies, with a similar proportion (48%) reconsidering staffing requirements to manage costs.