UK Government Rejects Proposal to cut VAT for the Tourism & Hospitality Sector from 20% to 5%.

UK Treasury minister David Gauke has rejected a call for tourism VAT to be cut to 5 per cent, despite MPs from all parties gathering to support the measure during a parliamentary debate on 11th February.

We are hugely disappointed by this outcome and agree strongly with Intercontinental Hotel group’s COO (UK & Ireland), Stephen McCall who noted that the VAT rate on visitor accommodation was undermining the hospitality sector’s ability to compete.

In the debate itself, Members of Parliament supporting the proposal pointed out that the UK’s tourism sector, which produces more than 10% of GDP and supports over 2 million jobs, has been hit particularly hard by the rises in VAT introduced by the coalition government as part of their austerity package and contrasted the situation in the UK with that in other EU countries where sector specific cuts to VAT (Ireland for example has a rate of 5% for the hospitality sector , including visitor attractions and restaurants) have helped to stimulate business and competiveness. Indeed, damningly, the UK is now ranked 138th out of 140 countries for price competitiveness for tourism by the World Economic Forum. The UK is one of only 4 EU countries that hasn’t taken advantage of a reduced rate.

In our view at Petersham Group, not only would this measure increase the competitiveness of the UK as a tourist destination, both for incoming tourists and for UK tourists, but it would stimulate the economy in rural and coastal areas that are not sharing the London-led UK economic recovery, supporting the vital SME sector into which so many leisure, tourism and hospitality businesses fall. It is estimated that the measure could boost GDP by £4 billion per annum, create and secure up to 80,000 jobs and deliver £2.6 billion additional net revenue back to the Treasury. Moreover, 44% of those employed in the sector are aged under 30, so it’s a measure that would very positively impact on youth unemployment. There is all-party support for this and it is not an issue that should be allowed to be swept under the carpet.

Much more information about the debate can be obtained via the ‘Cut Tourism VAT’ campaign.