Does VAT deter growth in Britain’s tourism industry?

When combined with domestic tourism, the British tourism industry as a whole is worth UK £115 billion a year and employs 2.6 million people – on both measurements that accounts for around 9% of the UK economy. 
Crucially, against the backdrop of a slow recovery from recession, tourism is growing faster than other economic sectors.

But would that £115 billion a year not be higher and the employment levels even greater if our tourism businesses and services were not subject to a punitive VAT regime which puts an extra 20% on every admission ticket, hotel and restaurant bill? The answer must be an emphatic yes.

Many argue that Britain’s standard rate of VAT of 20%, is unduly harsh. The Treasury, of course, would counter that the impact is offset, at least in part, by the 0% rate applied to ‘necessities’ such as groceries, water, prescription medications, medical equipment & supplies, public transport, children’s clothing, books & periodicals. And, yes, I know that Gift Aid can lessen the cost burden of admission to some attractions for UK tax payers, and overseas visitors can apply for VAT rebates upon departure, but the inescapable fact is that we need a lower, preferential rate of VAT to be applied to our tourism and leisure businesses simply because they are so significant.

Those in the tourism and leisure industry are rightly particularly vociferous about the impact of what is seen as such a punitive headline rate of VAT and are quick to point out how attractions, as well as hotels, restaurants and the other cornerstones of the tourism and leisure industry in other countries, are assisted by the often much lower rates of VAT applied to them in recognition of their importance to their respective national economies.

Unlike the majority of other EU countries, the UK doesn’t benefit from a lower level of VAT on attractions, hotels, restaurants etc., and no political party seems enthusiastic about introducing change. However, as the party political conference season gets into full swing and the parties start fleshing out their manifesto thoughts for the 2015 general election, I would suggest that what is more likely than a wholesale reduction in our standard rate of VAT is an increase in the standard rate, in part compensated for by a reduced rate on certain goods and services. The only issue then is how preferential might such rates be, and to which goods and services would they be applied?!

Prior to January 2012 our standard rate was 17.5% (remember?)

In France, where the standard rate is 19.6% (although going up to 20% in January 2014), they charge only 7% on admissions to cultural & sporting events, entertainment, and in hotels, accommodation and restaurants.

In Italy, where the standard rate is 21%, they charge only 10% on admissions to cultural & entertainment events, entertainment, and in hotels and restaurants.

In Germany, where the standard rate is 19%, they charge only 7% on admissions to cultural events, entertainment, and in hotels and accommodation.

The UK’s VAT regime does not help our standing as an international tourist destination, only adding to our reputation as an expensive destination. Nor does it encourage our domestic audience to forsake foreign lands and tread the ‘staycationer’ path.

Now is the time to bring on that long overdue shake-up in our VAT rate structure.