The axing of VAT-free shopping for foreign visitors cost the West End a record £310 million in the first half of the year, according to new research.
The estimated loss of spending between January and June was up 40 per cent on the £220 million reported for the same period last year.
It is the biggest six-month hit recorded since the scheme was abolished by Rishi Sunak in 2021 creating what has been dubbed a “tourist tax”.
Analysis from the New West End Company (NWEC), which represents 600 retailers, hotels and restaurants across Bond Street, Oxford Street, Regent Street and Mayfair, suggests the total sales cost for the West End amounts to about £1.4 billion since 2023.
Dee Corsi, chief executive of the New West End Company, warned that higher costs were "compounding the pressure" on the districts' retailers, leading many to review their staffing or investment decisions.
Around three quarter of West End businesses say they are reviewing staffing levels. Around half are were reassessing their investment in the UK, a survey from the body found. More than 80 per cent said the lack of tax-free shopping has directly damaged their trading performance.
The decision to scrap the scheme, which allowed overseas visitors to reclaim 20 per cent VAT on purchases, has been condemned as an "act of economic self harm" by London retailers and airports.
Industry pressure led Lisa Nandy, the culture secretary, to suggest the government "could explore" reviving the rebate in March.
However, it is thought Rachel Reeves is likely to restore what could be seen as a tax perk for wealthy foreign tourists while the Government is seeking cuts in the welfare budget.
More than 90 per cent of West End businesses reported lower spending and visits from international shoppers, according to the survey, while 96 per cent believed that spending in the West End was being diverted to European cities such as Paris and Milan.
There is also growing evidence that British shoppers are diverting their spending from London to rival European centres.
Latest data from the Association of International Retail (AIR) shows that in 2021, Britons spent a record £742 million on VAT-free shopping in the EU in 2024. That is up from just £147 million in 2021.
AIR estimates that restoring VAT free shopping for foreign tourists – which has included previously ineligible EU residents since Brexit – could deliver a £3.7 billion boost to the UK economy.
This fast growth is continuing in 2025 with spending in the first 22 weeks up 16 per cent on the same period in 2024.
The concerns have been fuelled by upbeat forecasts for global international visitor spending, which is set to reach $2.1 trillion in 2025.
"Tax-free shopping presents a rare, low-cost opportunity for the government to back Britain's near-term growth," Corsi said.
An HM Treasury spokesperson said: "Visitors can still claim VAT relief where items purchased are shipped directly to their home country as exports."
