Partner Article

The VAT issue in hospitality

Nick Holmes, Managing Director of Rockliffe Hall, Darlington, offers his opinion on the VAT situation in hospitality. Nick sits on various boards, including the North East Hotelier Association (NEHA) and the British Hospitality Association, Northern Region (BHA).

I’m not sure that the concept of the tourism and hospitality industry being singled out for special treatment with a reduction in VAT is likely to be initially met with overwhelming support from the business sector, until perhaps the case for a reduction is more fully understood.

There is increasingly compelling evidence, backed by a recent Deloitte report, that a more competitive rate of VAT within the sector would lead to a jobs boom within the 16-24 year old age range and boost GDP by £4bn per year whilst contributing a net addition to the Exchequer of £2.6 Billion over the next 10 years.

The UK tourism industry is a major sector of the economy contributing £115bn in direct and indirect spend representing 9% of GDP, it employs 2.7m and is a key driver of the national as well as local economies including of course the North East. Quite simply it is the UK’s 5 th largest industry.

Out of 27 EU member states only four (Denmark, Lithuania, Slovakia and the UK) do not take advantage of a reduced rate of VAT, with the likes of Germany (7%), France (7%) and Spain(8%) actively encouraging tourism by a more pro active approach. In fact the 2011 World Economic Forum ranked the UK 135 out of 139 countries in terms of travel and tourism competitiveness.

Government can talk up the Olympic legacy, but without more stimulation and consumer incentive, we risk losing out to more competitive destinations for the tourist pound. Reducing VAT on tourism services has been proven to work. The track record across Europe shows that a reduction stimulates investment, creates employment and supports long-term and sustainable growth.

A report by Professor Adam Blake, a prominent government treasury advisor concluded that cutting VAT on visitor attractions and tourist accommodation to 5% is “one of the most efficient, if not the most efficient, means of generating GDP gains at low cost to the Exchequer that we have seen with the GCE model”.

At a time when the North East is seeing steadily increasing tourism demand and in a year when we see the arrival of the Lindisfarne Gospels – surely a world class event, what better time for the government to act and give the regional and national economies a much needed boost by following Europe with a bold and radical reduction in VAT to 5%. I’m afraid I’m not holding my breath.

This was posted in Bdaily's Members' News section by Rockliffe Hall .