5% VAT rate for the hospitality trade?

You may, or may not, be aware that for some years now there has been a growing pressure being put on the government to lower VAT to 5% in the tourism industry. The UK  has the second highest rate of VAT on hotel accommodation in the EU. Further more, the UK is one of only 3 member states that have not yet reduced VAT on hotels and tourism / visitor attractions.

Liz Saville Robberts Plaid Cymru AS/MP recently launched a bid to back the 5% VAT rate for Tourism industries. She is not alone following in the footsteps of the Liberal Democrats who have adopted a policy to reduce VAT on Visitor attractions and accommodation. Indeed it is alleged that the campaign to reduce VAT on tourism is supported by more than 125 Mps from across the political spectrum.

Tourism operators are calling for a cut in VAT to help growth in the sector. They claim that cutting VAT to 5% on the hospitality sector would help local economies and create more jobs in the industry. Indeed it is claimed by independent research that a 5% Vat rate would create 123,000 new jobs across the uk with Dwyfor Meirionnyddshire benefiting from 4,000 new jobs in  an increase of £6 million pounds income.

Whilst on the surface it may seem the government would loose precious revenue from the cuts, it is claimed that the UK GDP would benefit from up to £4 Billion in the short term raising up to a £20 Billion gain of UK trade balance over a 10 year period.

Tourism is the Uk’s 6th largest export despite the UK being placed as 140 out of 141 countries for price competitiveness in tourism. It’s no surprise that the UK isn’t seen as an attractive destination when compared to other EU Member states who are cutting their VAT to provide incentives for tourism.

It is believed that the VAT cuts would strengthen the UK’s competitiveness in tourism providing further job security to an estimated 9.6%  of the UK’s work force who work in tourism industry.

Several large operators have already pledged to pass on savings direct to their customers, these companies include Butlins, Merlin Entertainments and Premier Inn .

Sceptics need only look to Ireland. In May 2011 they reduced their tourism VAT from 13.5% to 9% in a bid to help boost their economy. Initially the incentive was due to end in 2013 however having seen the huge benefits it created Ireland have continued to adopt the lower rate indefinitely. An analysis of the VAT reduction in Ireland claimed that employment had increased by 30,000 with direct tourism employment up by more than 20,000. What ever the statistics are the Irish government could clearly see the benefits gained in a short space of time.

With the Campaign to Cut Tourism VAT now being included in 6 out of  11 of the Uk’s political party manifestos will we be soon be feeling the advantage of a VAT cut in our sector? Only time will tell but my guess is that we will soon be experiencing the benefits of cheeper weekend away!