Tourism (VAT)

Debate between Baroness Ritchie of Downpatrick and Laurence Robertson

Tuesday 11th February 2014 Westminster Hall

[Ms Ritchie]

I thank the hon. Gentleman for his intervention and I agree with him. Many jobs in the tourism sector are quite low paid, but if there was a level playing field in taxation rates, that would afford the opportunity for employers to pay better rates. It would also ensure that people have confidence and trust, and would allow them to do a better job in promoting their local areas.

I would like to make a little progress. Will the Minister robustly consider the case for a reduction in VAT on hotel accommodation and visitor attractions from 20% to 5%? Would he also consider broadening that out in future to the wider hospitality sector, including to food served in pubs and restaurants? That would encourage many more foreign visitors and provide an incentive for staycations in the domestic market. It would boost coastal resorts, rural retreats and cities and towns that have been hit hard by the economic downturn since 2008.

The industry is significantly constrained by its lack of price competitiveness. The Chancellor is not long back from Davos. While there, he may have learned that the World Economic Forum places the UK in 138th place for price competitiveness for tourism, out of 140 countries. The UK sits at the bottom of the international league table, with businesses facing the challenge of the highest rates in the world for VAT, air passenger duty and visa charges. The purpose of today’s debate is not to rehearse the arguments on issues such as air passenger duty, but that placing shows that the Government’s lack of action on VAT forms part of a broader lethargy when it comes to supporting the tourism industry.

The Government say that visitor numbers remain strong, but I would suggest that that is in spite of the current pricing policy, rather than because of it. The UK’s balance of payments for tourist products has declined steeply in the past 15 years, making it clear that tourism growth has not been what it could have been in recent years, and that we are not maximising the industry’s enormous potential to deliver revenue and jobs. I would argue that the blame for that lies with the policy regime, which is holding back the industry’s potential. Any argument from the Government based on the cost of a VAT cut being prohibitive is highly dubious.

There is strong evidence from the Treasury’s own economic modelling, as used by Professor Adam Blake in a study for the British Hospitality Association, that a VAT cut for the sector would benefit the whole economy. Yes, there might be a loss of some £640 million in the first year, but that would be comfortably offset by years 2 and 3 of the programme. Figures show that a 15% cut in tourism VAT would quickly become revenue-neutral and would result in a radically increased tax take of £2.6 billion over 10 years, delivering a £4 billion boost to the gross domestic product. I repeat: those figures do not come from the industry or lobbying consultants. They are derived from the Treasury’s own internal economic models.

[Mr Laurence Robertson (Tewkesbury) (Con)]

The hon. Lady will be aware that alongside this debate and campaign there is great concern, as expressed in the main Chamber just a few days ago, about the plight of struggling pubs, many of which are closing each and every week. There are a number of issues behind that. Beer taxation, which the Government started to address, is certainly one of them, but VAT is hampering that industry as well, particularly when pubs survive through the food that they provide. Does the hon. Lady agree that one way to help pubs, which are a vital part of the tourism industry, would be to consider how they are affected by VAT?

[Ms Ritchie]

I thank the hon. Gentleman, who is the Chair of the Northern Ireland Affairs Committee, for his intervention. I agree with him on that point, but I see restaurants and pubs that serve food as being further down the line, so to speak. Nevertheless, I do not disagree with his point, because we must invest in local economies and jobs throughout the UK.