Overseas shoppers are choosing the European Union over London due to shopping taxes in the UK.

Here are the main points to consider:

- France and Italy stand out as preferred destinations for non-EU shoppers.
- London's appeal as a shopping tourism hotspot has diminished since the tax exemption ended, diverting tourists to the EU.
- Analysts suggest that this trend is affecting the cost of living in London.

London's appeal to shoppers has waned, primarily due to changes in tax shopping policies. Instead, non-EU nationals increasingly favor destinations like Paris, Milan, and Madrid, especially since the UK discontinued tax-free shopping following Brexit. In 2019, about 162,000 tourists sought VAT sales tax refunds in the UK. Now, one-fifth of these tourists are opting for rebates in the EU, where tax exemptions are still in place. This scheme allows non-EU visitors to reclaim the VAT they pay for services, provided they are not EU residents or citizens.

Brexit has prompted a surge in spending by foreign tourists in the EU. According to Global Blue, a tax rebate provider based in Switzerland, tourists are spending more in the EU, with approximately 34,000 tourists spending an average of €3,800 per person in 2023. This marks a 31 percent increase from 2019 when spending averaged €2,900 per person. France and Italy are the top destinations for such spending, attracting two-thirds of EU-bound shoppers, while Spain's retail sector is also experiencing growth.

The absence of a tax-free scheme in the UK is notably affecting international sales, particularly at retailers like Selfridges, according to Andrew Keith, the company's Chief Executive Officer.

The failure to reintroduce the tax break post-Brexit has also contributed to higher living costs in London, as stated by the New West End Company, a lobby group representing London's tourism sector. The Office for Budget Responsibility (OBR) estimates that public finances benefited by €537 million last year due to this policy change.

Thierry Andretta, Chief Executive Officer of Mulberry Group, emphasizes the need to attract foreign shoppers to the UK by offering them the same tax-free policy available elsewhere in the world.

Data from Global Blue indicates that the majority of spenders are from the Middle East, comprising 33 percent of the total, followed by Americans at 19 percent. Conversely, Chinese shoppers, who were previously top spenders, have been impacted by the COVID-19 pandemic, with their numbers now less than half of pre-pandemic levels.

Luxury and fashion brands in London have urged the government to reinstate the tax break, warning of dwindling shoppers and resulting business losses. The absence of tax exemptions has led to store closures and imposes a 20 percent tax on non-EU shoppers for items purchased in the UK.