Tourism (VAT)

Debate between Baroness Ritchie of Downpatrick and Stephen Lloyd

Tuesday 11th February 2014 Westminster Hall

[Ms Ritchie]

I thank the hon. Gentleman for his intervention. Although I understand that at this stage the focus must be on accommodation and visitor attractions, it would be wrong not to pursue the Treasury and the Minister to try to ensure that we get a better deal for our tourism industry and the wider population we represent.

It might be helpful if I gave a little information from the British Hospitality Association and the Cut Tourism VAT campaign. The Government have asserted that they cannot afford to take a loss on VAT income. It is worth pointing out, however, that the direct loss of VAT incurred by a reduction for visitor accommodation and attractions would be £1.2 billion. Half of that loss would be made good within the first year via savings from social security benefits—more people would be employed—and increased tax yields, principally from employment-related taxes. The year 1 deficit would therefore be £645 million.

[Stephen Lloyd (Eastbourne) (LD)]

rose—

[Ms Ritchie]

I will take a final intervention.

[Stephen Lloyd]

I thank the hon. Lady for giving way, and for securing this debate. Professor Blake said that he felt that a VAT cut would be

“one of the most efficient, if not the most efficient, means of generating GDP gains at low cost to the exchequer”

that he had seen, under the Treasury’s own model. Furthermore, a week or so ago I had a comprehensive meeting with VisitBritain and was reminded that such a reduction would create 80,000 new jobs. That would make a significant difference and neutralise the cost to the Treasury, exactly as the hon. Lady says.

[Ms Ritchie]

I thank the hon. Gentleman for his helpful intervention. It is worth pointing out that Professor Blake used the Treasury’s model for the research that resulted in his recommendation that the focus of a VAT cut be on accommodation and visitor attractions.

I would like to make a little more progress. I would like the Minister to clarify whether the Treasury accepts the figures resulting from its modelling, and whether it contests that this measure would be revenue-neutral and bring a long-term benefit, in terms of tourism numbers, tax revenue and job creation. If the Minister has figures that dispute that, I think everybody would be grateful to see them.

I would like to set the issue in the EU context. Even if the Government concede that the cost would not be excessive, they frequently argue that if such a cut was granted to the tourism sector, every other industry would be queuing up to get a similar cut. That is simply not the case. The EU has already established that the tourism industry is one of very few labour-intensive services that would be eligible for a reduced rate of VAT. Strikingly, the vast majority of other EU member states, which appreciate the importance of the industry, have exercised that right, but not the UK. As was pointed out in a report by Deloitte in 2011, the UK is the only country in the EU that does not apply a reduced rate of VAT to some part of its tourism sector.

The UK is one of only four of the EU’s 27 member states that do not take advantage of the reduced VAT rate on visitor accommodation, one of only 14 that apply the full VAT rate to admissions to amusement parks, and one of only nine that apply the full rate to admissions to cultural attractions. Thirteen countries, including Ireland, also have a reduced VAT rate for restaurant meals. That is not a record of which the UK can be proud. We hear much from the Government about how they are constrained and restrained by Brussels; here is a perfect example of where the Government have the right to be flexible, but they have so far refused to exercise that right.

Other countries are a rich seam of information on the benefits of a cut. It is no coincidence that after such measures are implemented, countries tend to stick with them. If we compare Ireland and the UK, we see a tale of two Governments. The introduction of a 9% VAT rate for tourism-related business and services made 2013 the most successful year since the financial crisis for Irish tourism, with visitor numbers up 10% and more than 9,000 jobs created.