Domestic tourism chiefs are urging the government to slash VAT on UK holidays and attractions in a move they claim will not only bolster the sector but also create 100,000 new jobs.
Bourne Leisure and Merlin Entertainments commissioned accountancy firm Deloitte to assess the potential impact of a cut in tourist VAT rates from 20% to 5%, and its report is forming the basis for “constructive dialogue” between the Treasury and the British Hospitality Association.
Tax on holidays in the UK is significantly higher than in all major European destinations, where governments have opted to stimulate tourism by cutting VAT rates. In Germany, hotel rates are 7% against a standard VAT rate of 19%, and in Spain they are 8% against a standard rate of 18%.
The Deloitte report says a rate reduction would result in a VAT shortfall of just over £1.2 billion per year, but claims the move would set off a “virtuous growth circle” which would see the Treasury recoup its investment within three years and benefit from a net gain of £2.6 billion over 10 years.
Dermot King, managing director of Bourne Leisure-owned Butlins, said a cut would help the government achieve its goals of kick-starting growth and creating jobs while ensuring that the growth was not at the expense of other UK sectors.
EU rules mean the government would be able to implement such a cut immediately without the need for changes to legislation, and King is hoping that the proposal will be included in the Chancellor’s pre-budget autumn statement on November 29.
“Our VAT rate is so far away from those in other key European destinations which a UK family might consider that we are not even in the same ballpark,” he said.
“This government has stated that it recognises the value of the UK tourism industry, and a reduction in VAT would boost both domestic and inbound numbers.”
He added: “This move is right on the money for the government in terms of economic growth and job creation, particularly in the under-25 segment, and it will also stimulate and encourage entrepreneurs to flourish.”
While the calls will be welcomed by inbound and domestic tourism businesses, they will undoubtedly receive a frosty reception from outbound operators who will feel tax breaks designed to encourage domestic holidays will have a negative impact on businesses already fighting against punitive taxes such as air passenger duty.
But King insisted the generation of new jobs and wealth would result in more potential customers looking to holiday at home and overseas.
“We agree that there should be a reduction in APD and we also believe there should be tax breaks for pubs and restaurants too, but I don’t think the government has the resources to do that at the moment so we have to focus on realistic targets,” he added.
Ufi Ibrahim, chief executive of the BHA, confirmed that the association was in detailed discussions with Treasury officials.
“We have presented our case to the Treasury, based on the Deloitte report, and we have had a number of meetings with senior officials,” she said.
“They have examined the report in detail and I’m pleased to say that discussions are continuing.”
If the BHA fails in its attempts to get the proposals included in the autumn statement, the campaign will focus on highlighting the value of tourism to individual MPs.