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Ms Margaret Ritchie (South Down) (SDLP)
I am pleased not only to have secured the debate but to serve under your chairmanship, Mr Hollobone. I am pleased that the Minister is here to listen and to respond. I thank my co-signatories to the debate, my friends the hon. Members for Brighton, Pavilion (Caroline Lucas), and for Strangford (Jim Shannon). I am pleased to see an excellent turnout from MPs across the UK and across the House, which reflects the importance of the debate. I offer an apology from my hon. Friend the Member for Foyle (Mark Durkan), who is on a Public Bill Committee on consumer rights this morning. During the past couple of years, he has submitted an early-day motion on the subject, and tabled an amendment to a Finance Bill on the issue.
A reduction in VAT is important for tourism, which is a vital industry across these islands; it provides 10% of GDP and supports more than 2 million jobs in the UK. In Ireland, the industry employs some 180,000 people and generates an estimated €5 billion a year. There is potential for significant growth in the sector, especially in Northern Ireland, and that growth would boost associated industries and the wider economy.
Those who come to the UK as tourists spend money in our hotels, pubs, restaurants and shops. They bring economic life to areas that have struggled in the recent economic climate. However, the tourism industry was hit particularly hard by the higher rate of VAT introduced by the Government, and no alleviation has been offered. It is common practice across the EU for member states to introduce sector-specific cuts for the tourism industry, which some offer for accommodation rates, some for tourist and cultural attractions and some for restaurant charges. The UK is one of only four states that ignore all those options. As a result, the industry in Britain and Northern Ireland confronts one of the worst policy regimes possible.
Roger Williams (Brecon and Radnorshire) (LD)
I congratulate the hon. Lady on securing the debate. Small hospitality businesses in my constituency are afraid to go above the threshold for VAT registration for fear of having to pay a rate of 20% on their income. Does she agree that reducing the VAT rate would encourage such small businesses to expand?
Ms Ritchie
I thank the hon. Gentleman for his helpful intervention, and I completely agree with him. In our nearest neighbour, the Republic of Ireland, VAT on tourism products is now 9%. Even in the difficult economic climate that the Republic has experienced—it has just come out of the bail-out situation—the VAT rate reduction has underpinned businesses in the tourism sector and encouraged new ones to emerge.
Mr Nigel Dodds (Belfast North) (DUP)
I, too, commend the hon. Lady and her colleagues on securing this important debate. To be parochial for a moment, in Northern Ireland the problem is our land frontier with the Irish Republic where, as she has just mentioned, there is a lower rate of VAT. Is that not a particular issue for the Province, given people’s propensity simply to go south to enjoy better VAT rates?
Ms Ritchie
I thank the right hon. Gentleman for his very helpful intervention. I absolutely agree with him. My constituency borders County Louth in the Republic of Ireland. Many people come to the island of Ireland via Dublin airport, where there will be a zero rate of air passenger duty from April this year. The lower VAT rate on tourism products encourages many of them to use their purchasing power on accommodation and restaurants in the Republic of Ireland, rather than travelling north, where they would have an opportunity to invest in our local economy.
As a labour-intensive industry, the tourism sector is a leading employer. In particular, it offers younger people entry-level jobs at the start of their careers, and more than 44% of people employed in the sector are less than 30 years old. We face a youth unemployment crisis, with more than one in four young people out of work, and the Government’s lack of support for the tourism sector is clearly impairing job creation. A cut in the rate of VAT would create demand, which would spur job creation and go some way towards reducing youth unemployment. In Ireland, the VAT cut for tourism has produced an extra 10,000 jobs in just over a year. A prominent report on the subject published by Deloitte produced evidence that a similar tourist VAT cut in the UK would create some 80,000 jobs.
Mr Geoffrey Cox (Torridge and West Devon) (Con)
I congratulate the hon. Lady on securing this extremely important debate. I represent an area of the south-west that is affected by flooding. Does she empathise, and does she agree that if the Chancellor considered a cut in VAT, it would be a hugely welcome boost to the thousands of small tourist businesses on which the economy of the south-west depends, and that it would help those who are shivering in the midst of the flooding?
Ms Ritchie
I thank the hon. and learned Gentleman for his helpful intervention. My colleagues from Northern Ireland and I offer our sympathy, support and empathy to the people of the south-west. My aunt used to work in the hospitality industry in Plymouth many years ago, so I know it quite well. I suggest to the Minister that a cut in VAT would help those who are struggling economically, financially and emotionally at this difficult time.
Mr George Howarth (Knowsley) (Lab)
I congratulate the hon. Lady on securing the debate and on the forceful way in which she is putting her case. Does she agree that attractive tourist destinations such as Northern Ireland and Merseyside are being hampered competitively by the arrangements elsewhere in Europe that she has described?
Ms Ritchie
The right hon. Gentleman is absolutely correct. Other countries in the EU, including Belgium, the Netherlands and Germany, have much more competitive rates. In France, for example, there is a banking agreement between the Government and the industry. Such measures help to attract visitors and ensure that the money they spend is invested in the local economy.
Tim Farron (Westmorland and Lonsdale) (LD)
I congratulate the hon. Lady on securing this incredibly important debate. She mentioned the possibility that a VAT rate reduction for the tourism industry would lead to increased job creation. Would she recognise that many people in the tourism industry—particularly in places such as my constituency, the Lake district, and the Yorkshire dales—are desperate not only to create more jobs but to ensure that jobs are better paid and that a living wage can be paid to people working in the tourism industry? Does she acknowledge that a cut to a fairer level of VAT would help to make tourism a more high-wage industry?
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.
Mark Field (Cities of London and Westminster) (Con)
The hon. Lady will appreciate that my constituency attracts a huge amount of tourism, being right in the centre of London. I therefore have some sympathy with a lot of what she says—a number of operators have lobbied me on the matter. However, she recognised and referred to the idea that the Treasury would potentially lose money in the short term. She mentioned some specifics on which she would want immediate action—tourist attractions and accommodation—but does she not recognise that if we include other things, such as pub food, we are looking at a very uncertain tax break? It could cost considerably more money at a difficult time for the public finances. Is it not therefore important that she focuses specifically on measures that will have the maximum benefit for the UK’s tourism industry, without negative effects on the public purse?
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
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.
Tessa Munt (Wells) (LD)
The Minister will know of my passion for caravans, because there are so many in my constituency. I thank him for the work that he did last year to ensure that the proposed VAT rate on caravan sales was dropped from 20% to 5%, which has saved the industry in my area and other parts of the UK. I ask him to consider a tourism-related VAT cut in exactly the same vein. Holidaymakers’ loyalty to the UK, holiday businesses’ investment in the UK, and the passion for people felt by tourism staff, of whom I was one for a decade, deserve to be rewarded with a sensible approach to this issue.
Ms Ritchie
Yes, that is what many of us are saying. We are making a special plea to the Treasury for a sensible approach that ensures growth in our local economies.
In conclusion, to take the case of Ireland, north and south, the island is marketed as one area, but it has two different taxation regimes and two different rates of tax on tourism products, including both visitor attractions and accommodation. We believe that that needs to be synchronised in some measure. I hope that the Minister sees that there is a strong case for a VAT reduction for accommodation and attractions. It could subsequently be widened to include food served in pubs and restaurants, which forms an integral part of our wider tourism sector. That would send a strong message of support to the tourism industry and, importantly, enable it to compete on a more even basis with other European nations, which have almost unanimously introduced such measures. I know that the local tourism industry in Northern Ireland—particularly in my constituency, where wonderful work is already being done—would welcome it with open arms.
There are many MPs here from England, Scotland and Wales, and I know, having talked to some of them, that they would also welcome such measures to pump-prime and grow the local economy, and enable the tourism industry to invest in growth and jobs. This Government talk a great deal about creating growth in the private sector, delivering jobs and supporting local businesses. Here is a ready-made policy that could be implemented quickly and would deliver instant results. I hope that we have a full and frank debate about the issue, leading up to the Minister’s response and, hopefully, to some better news in the Budget report on 19 March.
Mr Philip Hollobone (in the Chair)
Order. I have some good news and some bad news. The bad news is that I am afraid you are going to have to tear up your 15-minute speeches. The good news is that I shall do my level best to ensure that everyone gets to speak, but it will only be for a limited period. With the permission of the Chairman of Ways and Means, I will impose a three-and-a-half-minute time limit, which will work only if there are no interventions. If there are no interventions and everyone sticks to the time limit, that should leave 10 minutes each for Front-Bench speeches.
Dr Sarah Wollaston (Totnes) (Con)
I congratulate the hon. Member for South Down (Ms Ritchie) on her excellent speech. I do not intend to repeat it, but I will start by saying that the south-west is open for business. Times are difficult for us at the moment. I send my condolences to all those in Somerset affected by the terrible flooding. In my own coastal constituency, many families and business have been severely affected.
What we need at the moment is help. We offer a fantastic range of opportunities for people who want to come to visit—if God made constituencies, he would have designed Totnes—and I hope that people will visit, but those businesses are struggling. I have heard from numerous business owners in my constituency about the effect of competition across Europe. As people decide where they will stay this summer, they are considering things such as food prices in restaurants and the cost of accommodation. Right now, our businesses are crying out for support from the Treasury. Can we consider seriously the impact that a 5% VAT rate would have, particularly if applied to hotel rooms and visitor attractions? It is not just competition across national boundaries that makes a difference; it is competition within the tourism sector.
Perhaps the Minister will clarify the effect in his response. Riverboat and tourist rail companies currently are not hit by the higher rate of VAT because they count as transport, but neighbouring attractions are. I am also told that there is concern across the industry about the position of charities. We need a level playing field. I am not suggesting for a minute that we should apply a higher rate to other businesses; only that we should make the playing field level across the sector. That would be widely appreciated.
I would like to mention the impact on employment. Yesterday, I met a large group of young people from my constituency, where youth unemployment is, sadly, an ongoing issue. The tourism sector is particularly important in providing opportunities for young people in my constituency. We have a very low-wage economy. Numerous businesses have written to me to say that they would like to pay a living wage but are unable to do so at the moment. Will the Minister consider what impact higher wages across this important sector would have on allowing young people to stay in places such as south Devon? Will he consider the evidence? I have been contacted this week by one very successful business saying that, normally, it would employ far more people, but it has had to cut its staff from the 35 people that it usually employs on the payroll at this time of year to 27. Will he confirm in his response that he has considered the impact that a VAT cut could have on that?
Most importantly, I reiterate that the south-west is open for business. I encourage anyone listening to this debate to come see what we have to offer, but I would also like the Government to do their bit by allowing businesses to offer lower prices, so that people will make the right decisions as the summer comes on.
Albert Owen (Ynys Môn) (Lab)
It is a pleasure to follow the hon. Member for Totnes (Dr Wollaston). I, too, congratulate the hon. Member for South Down (Ms Ritchie) on an excellent introductory speech. I know that we are time-limited, so I will concentrate on some items local to my area and on general issues. As both speakers have said, VAT is a consumer tax that impairs employment opportunities, so it is in many respects a tax on jobs. The Government claim, quite rightly, that they want to eradicate the deficit, but they have chosen the wrong tax to increase, because it has a negative effect on jobs and the economy. In the United States, where there has been fiscal stimulus, the economy has grown much more quickly since the recession than in this country.
VAT has an impact on jobs directly and on the tourism sector in particular, and not only the journals of the hospitality industry are saying that: The Daily Telegraph, which is not a left-leaning paper by any stretch of the imagination, has said that VAT
“is forcing many businesses into a tight corner.”
VAT is hurting small businesses, and as a consequence, it is affecting the number of jobs that could be created.
The tax take is being unfairly concentrated on small and medium-sized businesses. We are seeing a 19% increase in VAT on small businesses at the same time as large corporations are experiencing a decrease in the tax taken from them by the Treasury. We need to even out that situation.
The suggestion made in this debate—including by the hon. Member for South Down, who secured it—to reduce VAT on tourism is a sensible one. Tourism is one of the fastest growing global industries, and we live in a global time, as the hon. Member for Totnes suggested. My area has a link with the Republic of Ireland, which is only two hours away, and many tourists who come to north-west Wales “do Europe” and they can compare the prices in Britain with those in other countries in the European Union. That is true in my area, to the south and west of us—Pembrokeshire is also close to the Republic of Ireland—and in the south-east of England, which is close to France and the rest of the continent.
I represent Ynys Môn, the Isle of Anglesey, and the area is very proud of its tradition of drawing many people from across the world. We need to help tourism businesses. In the short time that I have left to speak, I will highlight the experience of one business, whose owners have written to me. At the moment, their business is just below the VAT threshold. They want to invest in the local economy and local people, but they cannot do so because they are inhibited by the fact that they would face a 20% hike in VAT if they choose to go above the threshold.
VAT is a tax on jobs and it can be reduced. People right across the United Kingdom want a fair and level playing field for our tourism and hospitality industries. Reducing VAT is a simple measure that could achieve that level playing field.
I finish by saying to colleagues who represent areas that are being flooded that the UK is a great destination and that it is open for business. The heart of the British Isles is Ynys Môn, the Isle of Anglesey, but the rest of Britain would also benefit from a policy of reducing VAT.
Mr Mark Williams (Ceredigion) (LD)
It is a pleasure to serve under your chairmanship, Mr Hollobone, and I, too, congratulate the hon. Member for South Down (Ms Ritchie) on securing this debate. She spoke as a Member for Northern Ireland, but she also took a UK perspective, and I will add a Welsh dimension to the debate. I suppose that the benefit of having a limit of three and a half minutes to speak is that we will not have huge opportunities to advertise the merits of our own constituencies, although both the hon. Members for Totnes (Dr Wollaston) and for Ynys Môn (Albert Owen) did a good job in advertising theirs. I look forward to going to Totnes to meet the members of the South Brent women’s institute in a week or so.
Ceredigion speaks for itself: there are huge opportunities for growth in our tourism sector. I reiterate the comments that have been made about flooding. Many Members will have seen on their TV screens the great Victorian promenade on our seafront in Aberystwyth being battered by the storms. That has caused significant damage, but the message from me, as from others, is that businesses in my area are open for business. I concur with what the hon. and learned Member for Torridge and West Devon (Mr Cox) said about the message that a reduction in VAT would send out to those businesses that have suffered recently.
In Wales, of course, the responsibility for tourism is shared—there is a partnership between our National Assembly Government and this place—but the taxation regime across the UK directly impedes the development of the tourism sector. Two years ago, the British Hospitality Association commissioned Oxford Economics to produce a report that specifically examined the impact of VAT on the tourist sector in Wales. The report was appropriately named, “Hospitality: driving local economies” and showed how hospitality underpins communities. It highlighted the importance of tourism and hospitality to jobs in Wales.
In Wales, more than 112,000 people are employed directly, and another 56,000 people are employed indirectly, in tourism and hospitality. In my constituency, 3,000 people are employed in the sector, which is about 8% of total employment in my constituency. If we take the big players out of our economy—our universities, our NHS and our local government—tourism is at the top of the list of employers.
As I say, 8% of people in Ceredigion are employed in the sector, and as we heard from the hon. Member for South Down, potentially another 80,000 jobs could be created in tourism. Therefore, 10,000 jobs could be created in Wales, which would mean 2,000 new jobs in my constituency. In turn, that would create opportunities for young people and keep people in our communities, rather than seeing them move away. The key phrase is giving the right support to the tourism sector, and I am very much of the opinion that the sector would be boosted if the 5% VAT rate was introduced.
My hon. Friend the Member for Wells (Tessa Munt) talked about the importance of caravans in her constituency, and they are important in my constituency, too. I will quote the Prime Minister, who has said:
“There are always good cases for cutting VAT on individual items. The leisure industry and the hotel industry make a very good argument”.
Of course, he is right on that and the Government were right to take the action that they took on the VAT rate for static caravans. I and many other Members who are here in Westminster Hall today presented petitions on that issue, making the point about the need to reduce VAT to stimulate our local economies, and of course that is what we are all calling on the Government to undertake to do today. We do so in the expectation that that move would be costly in the short term but that, further down the road, it would be cost-neutral, as well as being of huge benefit to the national economy and particularly to our local economies.
Caroline Lucas (Brighton, Pavilion) (Green)
I congratulate the hon. Member for South Down (Ms Ritchie) on securing this debate and on her compelling opening speech.
I am hugely cheered by the number of people who have come out for this debate, which demonstrates the strength of feeling across the House about the importance of this measure. However, there is the sad downside that I cannot talk about quite as many of the wonders of Brighton and Hove as I had hoped to. Nevertheless, I will highlight the testimonies that I have received from the Brighton and Hove chamber of commerce and from Brighton and Hove Tourism Alliance, both of which have told me—in no uncertain terms—what a big difference this measure would make to the local economy in the city.
There are not many win-wins in politics, but this measure is one of them. In fact, it is not even a win-win. It is a win-win-win, in the sense that it is good for jobs and for the economy, because over time it is likely to raise revenue for the Exchequer, and it addresses the competitive disadvantage that the UK suffers by comparison with other parts of the European Union. In a few years’ time, we will look back to today and think, “Why on earth didn’t we move this whole debate sooner?” because it is such an obvious issue to act on. It is like the famous £20 note on the street that people walk past because they cannot quite believe that it is there and such a benefit. This measure would be a benefit; there is a chance now to grasp this opportunity; and I hope that the Treasury is listening to this debate.
Many hon. Members have referred to jobs in tourism. I will just underline one aspect of tourism: 44% of those employed in the sector are under 30, compared with a national average of 24% for all sectors. Therefore, it is anticipated that a cut in VAT for tourism would particularly encourage the creation of employment opportunities for young people. That is incredibly important.
Significantly, the tourism industry has expressed a willingness to consider entering into a collaborative agreement along the lines of the French contrat d’avenir, which would include taking on long-term unemployed people as well as increased involvement in training and product improvement. Again, there is a real opportunity to create more apprenticeships and to get more young people into jobs, so that they can move forward.
Many hon. Members have talked about fiscal neutrality, and there is strong evidence to support the case that this measure would be fiscally neutral. The key evidence for the case to reduce VAT on attractions and accommodation comes, as other Members have said, from Professor Adam Blake, the Treasury adviser, who has used the Treasury’s own economic model. As we have heard, he concludes that a reduction in VAT for accommodation and attractions would be
“one of the most efficient, if not the most efficient, means of generating GDP gains at low cost to the Exchequer”.
The standard Treasury reply to correspondence on this issue states that a cut in VAT would cost the Exchequer an estimated £1.2 billion a year. However, we have heard that Professor Blake found that, based on reasonable and plausible assumptions, the modelling exercise seems to support a general case that a reduction in VAT on tourism services
“would be fairly close to fiscal neutrality.”
He reports that the modelling shows substantially higher GDP gains than others have predicted, peaking at about £4 billion a year.
We also heard earlier about the research that was undertaken by Deloitte and Tourism Respect, which included case studies of tourism VAT changes in other countries and detailed analysis of the price sensitivity of UK tourism. The research found that cutting VAT on tourism would deliver £2.6 billion in extra revenue to the Treasury over a decade and create 80,000 jobs over two to three years. There would be a one-year shortfall in fiscal income, which is projected to be £645 million net or £1.2 billion gross. However, there is a key question that I would like to hear the Minister answer today: if it were possible to find a way of bridging that gap—
Andrew Bingham (High Peak) (Con)
I thank the hon. Member for Brighton, Pavilion (Caroline Lucas). I am pleased to serve under your chairmanship, Mr Hollobone, and I congratulate the hon. Member for South Down (Ms Ritchie) on securing this debate.
Three and a half minutes is not enough time for me to extol all the virtues of my High Peak constituency. Suffice it to say that many hon. Members have heard of High Peak and of Buxton, Glossop and all our fantastic attractions, such as the caves of Castleton. Tourism is a huge source of income for the High Peak. I would support a cut in VAT, which would boost the local economy by bringing more tourists into High Peak and across the country. The hon. Member for Westmorland and Lonsdale (Tim Farron), from the Lake district, who is no longer in his place, may argue with me about this, but the Peak district, which covers a lot of my constituency, is the best national park in the country; it is the second most visited in the world, after Mount Fuji. Let us make it the most visited.
A cut in VAT would boost the economy and create jobs for local people, including young people. Many young people work in tourism. One of my first jobs was working as a waiter in a restaurant, often serving tourists. A VAT cut would help in that regard.
Tourism is a competitive market. It is not just about getting people from this country; it is about bringing international visitors into the country. It is part of my job to get them up from London—up the M1 and the M6, and the west coast main line—into High Peak, to see what we have to offer. In an international marketplace, a cut in VAT would help. VAT charged on visitor accommodation in France and Spain, our two biggest competitors in Europe in terms of tourists, is charged at 10%, but it is 20% here. Studies say that, if we cut VAT, operators would pass that on to the customer. We need to try to compete on a level playing field with France and Spain, not on the one that we are encountering at the moment. We must get visitors in from abroad. We must encourage staycations as well, keeping British people here holidaying. We had a good summer last year; let us hope we have another good one this year.
I appreciate that we live in difficult times and that the Treasury is not overdone with cash at the moment, and I hear the talk about fiscal neutrality. However, I regard today almost as a start of a conversation. In an ideal world, we would like to see this cut included in the Budget, but money is tight. Let us start a conversation and look at this idea. I have seen various studies about its benefit to tourism and to the country. We should give this matter serious consideration.
I am sure that the Minister and his colleagues in the Treasury are badgered repeatedly by colleagues who want money for this, that and the other, but as a Member of Parliament representing a seat in a place that exists on huge tourism income, it is incumbent on me to say to the Treasury, “Give this priority among other requests for cash and for money.” If we cut VAT on tourist attractions and hotel accommodation, we will get the benefit.
High Peak is a rural area and we have rural disadvantage. People talk about rural deprivation: we have poor broadband and things like that. A VAT cut will give the economy a boost to offset the difficulties that we face. I am glad that the Minister is here and I am sure that he is listening. On behalf of everybody in High Peak, I ask him to look carefully at this proposal. If we cannot do it in this Budget, let us look at it sooner rather than later.
Mr Mike Weir (Angus) (SNP)
I am pleased to contribute to this important debate under your chairmanship, Mr Hollobone. I congratulate the hon. Member for South Down (Ms Ritchie) on securing it.
I have pursued this issue over the years. In fact, I first asked a question about it in 2004. To my last question on the subject, in October, the Exchequer Secretary, who will respond to this debate, replied:
“I have written to the Chairman of the Campaign for Reduced Tourism VAT explaining that while there is no prospect of a VAT cut for tourism, the Government is committed to a wide range of measures to support tourism.”—[Official Report, 8 October 2013; Vol. 568, c. 161W.]
That does not give me a great deal of confidence that he will change his mind today, but, never being one to give up, I will give it a try.
In 24 of the current 28 European Union states, including Germany, France and Spain, there is a lower rate of VAT for tourist accommodation. In fact, the UK has the second highest rate of VAT on hotel accommodation, exceeded only by Denmark and Lithuania. The rate in Luxembourg is 3%, and in Portugal, which is, of course, a major tourist destination, it is only 6%. At a time when tourist businesses are fighting hard to retain their business against cheaper destinations, these lower rates give many continental destinations a considerable advantage over businesses within the UK. This is an important issue for Scotland, where tourism contributes 4.9% to our GDP. Indeed, almost 10% of my constituents work in tourism or tourism-related businesses.
Even the UK Government have not been averse to cutting VAT on selected tourism-related operations. In the 2012 Budget, they cut the VAT chargeable on small cable-suspended transport systems—ski lifts, to you and me, Mr Hollobone—which was a welcome change, especially for ski-lift businesses. I am sure that it is entirely coincidental that most of those businesses are in the constituency of the Chief Secretary to the Treasury. However, that illustrates what can be done and that the UK Government have done it in other areas.
The Irish 9% rate specifically applies to facilities used by those taking part in sporting activities and extends to green fees charged for golf and subscriptions charged by non-member-owned golf clubs. Again, that puts them at an advantage in a competitive market against the wonderful golf clubs in Scotland and other parts of the UK. In addition to the 9% rate, Ireland has for some time had a 13.5% rate on other services, including short-term car hire and tour guide services.
When the present UK Government published their tourism strategy in 2011, they stated that they aimed to generate 4 million extra visitors up to 2015 and that,
“The increase in overseas visitors would bring an extra £2 billion worth of visitor spend and help to create 50,000 new jobs across the country over that period, securing tourism’s place as one of Britain’s”
greatest
“industries.”
I struggle to see how the GREAT campaign and simplifying visa applications for Chinese visitors, as mentioned in documents, could do that. A VAT cut would go a long way to helping hard-pressed tourism operators.
Hon. Members have talked about Professor Blake’s research and the amount of jobs and income that would be created. I will not go over that again, but whatever research says, a cut of VAT to tourism-related businesses would lead to increased employment and give a significant boost to the rural economy in all parts of the UK.
We need to give our tourism industries a boost and a chance to fight back, rather than asking them to fight with one hand tied behind their backs because we refuse to match the change in VAT in the EU.
Mr Alan Reid (Argyll and Bute) (LD)
I congratulate the hon. Member for South Down (Ms Ritchie) on securing the debate.
I am fortunate to represent the beautiful constituency of Argyll and Bute. The scenery is beautiful, but the economy is fragile. “You can’t eat the scenery”, as the old saying goes, but we can sell the scenery to visitors, and that is where tourism plays such a vital role. Tourism provides jobs in remote areas where alternative employment would be difficult to find. It is a labour-intensive industry, so much of the spend goes straight into jobs. This is a very competitive international industry. With many people struggling to make ends meet, price is an important factor in their choice of holiday, and Britain’s tourism businesses have to cope with a VAT rate double, or even more than double, the rate in Spain, Germany, France, Italy and the Republic of Ireland.
The UK is now one of only four EU states with no reduced VAT rate for tourism. In a price-sensitive international market, the high rate of VAT compared with our competitors must be damaging our tourism industry. Reducing tourism VAT would lower prices, attract more visitors to the UK and encourage businesses to invest in Britain’s tourist attractions.
Of course, cutting any tax means reduced revenue in the short term, but surely the key is whether the cut will stimulate the economy to such an extent that the public purse benefits more in the long run from the extra economic activity than is lost in the short term by the tax cut. Stimulating the tourism sector will lead to more people working—so fewer benefit payments and more income tax and national insurance coming into the Treasury.
Many detailed independent studies and analyses have all found that reducing VAT on tourism to a rate of 5% would stimulate both domestic and overseas demand, leading to expansion of the tourism sector, the creation of many jobs and a fiscal return to the Treasury that would reverse the long-term trend of Britain’s worsening tourism balance of payments.
We do not just have to rely on theoretical modelling. The Isle of Man cut VAT on tourism to 5% 20 years ago and that was such a success that the Manx Government have never even considered reversing it. Visitor numbers to the Isle of Man show that, in the nine years before the cut, there was a sharp decline in tourism, but after the VAT cut, visitor numbers recovered strongly and have stayed high since then.
Britain has a vibrant tourism industry. We have a wonderful product to sell, but common sense says that we cannot compete if our VAT rate is double that of our competitors. The experience of the Isle of Man and the independent modelling both indicate that cutting VAT on tourism will bring in more tax revenue than will be lost. Theory and practice are in agreement.
I hope that the Government accept the findings of the independent reports and cut VAT on tourism. I know that the Minister cannot pre-empt the Budget by making an announcement today, but I expect him to say in his winding-up speech that the Treasury is taking the campaign seriously and will study carefully the findings of the independent reports and respond to them.
Jim Shannon (Strangford) (DUP)
I congratulate the hon. Members for South Down (Ms Ritchie), and for Brighton, Pavilion (Caroline Lucas), on having joined me in securing this debate.
Members will not be surprised to hear that I am unashamedly vocal about the beauties of my constituency, and I truly believe that I represent the most breathtaking constituency in the whole United Kingdom. I have previously spoken of the potential for tourism in Northern Ireland that has yet to be explored, and if that potential were to be exposed to the rest of the world, the entire United Kingdom would benefit. The first part of my three-and-a-half minute contribution is on the question of how we go about that task.
The Northern Ireland issue is highlighted and exposed by the fact that we border the Republic of Ireland. The industry in Northern Ireland is linked to tourism in the Republic of Ireland, so the discrepancy in VAT rates is noticeable. VAT in the Republic of Ireland has been reduced for hotel accommodation since 1986. In 2011, the VAT reduction was extended to cover out-of-home meals. Take those two things together and Northern Ireland—and, indeed, the United Kingdom—is 11% behind the Republic of Ireland’s VAT rate. That puts the United Kingdom, and especially Northern Ireland, on an uneven keel.
The Northern Ireland Hotels Federation gives figures that justify a VAT reduction. The federation indicates that 14,900 jobs would be created by reducing VAT. Gross value added would increase by £155 million, and wages would increase by £64 million to £225 million by 2020. Those figures indicate a clear win-win-win, because as the hon. Member for Brighton, Pavilion, said, a VAT reduction would mean more jobs, more money in people’s pockets, and a reduction in benefits paid to the unemployed. That can clearly be done. The Republic of Ireland produced 6,500 new jobs and saved 31,000 jobs, which indicates the seriousness of our position. We are one of only four countries in Europe that are not availing themselves of a reduced VAT rate. The VAT rate on hotels is 7% in Germany and 10% in France, and that encourages UK and EU residents to holiday in those countries. It is time that we did something about that. Perhaps the Minister will indicate what he hopes to do.
The industry is anxious to find the best way to use a VAT cut for the benefit of the Treasury and the UK as a whole, for example by ensuring that at least half the cut is passed on in lower prices, with the rest used for increased staff wages, training, employment and increased investment; that would be similar to what the French Government did with their restaurant industry.
Time is against me, but others will join me in proving beyond reasonable doubt that a short-term investment in the tourism industry will yield long-term dividends, as has been proved in Europe and can be shown here, if the chance is taken. Some might ask, “How can we do that?” I would simply tell them to book a flight to Belfast and take the 20-minute journey to my constituency. They will see within seconds why I believe that, with a little bit of help and support, tourism can and will thrive. There is an opportunity for us all to take our place on the world tourism stage and to allow others to enjoy what we have: great lodgings, fantastic scenery, wonderful shopping, world-class golf, hotels, salons, historical journeys and, most importantly, our unique Northern Irish hospitality, which draws people and makes them feel part of the family. It is not for nothing that we are called the happiest people in the United Kingdom. A holiday in Northern Ireland will refresh and renew. The Minister has a chance to enhance that potential, and I hope that he will take it.
Simon Hart (Carmarthen West and South Pembrokeshire) (Con)
About two years ago, I spoke to a Treasury Minister about this issue. He was a much more junior Treasury Minister than the one here today, but none the less he was a Treasury Minister. He simply said that the Treasury would dismiss any suggestion of a reduction in VAT because anything that contributes, even in the short term, to an increase in the deficit is a threat to interest rates. The Treasury therefore dismissed such a reduction out of hand, but times have changed. We have heard much about the Deloitte survey and about Professor Blake’s use of the Treasury’s model. We have a much enhanced and increased coalition of stakeholders and interests, which have put compelling evidence before all of us and, I think, before the Treasury. In the past few weeks we have seen a huge climatic impact on coastal communities such as mine, and on inland communities, and that has altered the outlook somewhat for tourism businesses in those areas.
I will quickly refer to a fairly formal letter that the Prime Minister wrote to the late John Cook, one of the three founding fathers of Bourne Leisure, the big holiday company, in October 2010. The little bit in the Prime Minister’s own handwriting at the bottom is interesting:
“The figures for other EU countries are—as you say—striking. But the fiscal challenge right now is so bad that it will be tough to persuade HMT, as you say, to accept short term loss for medium term gain. It is the early years where the need for deficit reduction is so great.”
Things have changed since October 2010, and I am not sure that the Treasury is able to argue with the force that it did then that such measures should be resisted. The Prime Minister, I thought, left the door open in his letter to Bourne Leisure and John Cook: a VAT reduction is not beyond the Treasury’s grip when economic conditions improve.
Not for the first time, it is the Treasury versus everyone else, including people in the tourism industry represented here, and many businesses dotted around various constituencies, represented here or not. It cannot be completely true that the Treasury is always right and the experts in the industry are always wrong. The circumstances have changed. They changed recently because of the weather, but they have changed over a longer period because of improved economic conditions, and because of the evidence put before us by experts in the field. I hope that the Treasury will take those changing circumstances into account. For the benefit of those in the tourism industry, whose representatives are here to make the case, the Treasury should not dismiss these matters out of hand, as it did quite reasonably three or four years ago.
Lindsay Roy (Glenrothes) (Lab)
It is a pleasure to serve under your chairmanship, Mr Hollobone. I commend the hon. Member for South Down (Ms Ritchie) on her powerful presentation. Many of the points I wish to make have already been raised, so I will concentrate on constructive reinforcement, rather than on unnecessary duplication. I hope hon. Members are able to distinguish between the two.
Commendably, the Prime Minister has been quoted as saying:
“There are always good cases for cutting VAT on individual items. The leisure industry and the hotel industry make a very good argument.”
I would go further: there is a compelling case. Indeed, it is extremely ironic that the Prime Minister, who wants to negotiate flexibility within the EU and to reduce bureaucratic orthodoxy, has failed to capitalise on one of the key areas on which there is considerable flexibility—the VAT charges on tourism, particularly on the hotel and leisure industries. Indeed, it is shocking that we are at such a disadvantage compared with other European countries, as was highlighted by a number of speakers, when the Government have the power to reduce VAT. It is all the more disturbing that a party that espouses the virtues of innovation, enterprise, grasping opportunity and promoting sustainable growth in business has so far failed to reduce VAT. UK tourism is almost at the bottom of the league table of international competitiveness —we are 138th out of 140—yet it is our economy’s sixth largest export earner.
The Chancellor pleads repeatedly for removing barriers to growth and for promoting investment. The conservative estimates of an independent and reputable academic highlight the potential to boost GDP by £4 billion a year, to create 80,000-plus jobs and to improve professionalism in the industry. Professor Blake confirms that such an initiative would be fiscally neutral, so what on earth is holding the Chancellor back? The tourism industry feels that it has to operate with one hand tied behind its back, with declining opportunities for sustainable growth.
It is economic madness not to reverse the long-term trend of decline in the UK’s tourism balance of payments. We are clearly not operating on a level playing field. My home county of Fife is the Mecca of world golf, yet tourist numbers are declining. In my neck of the woods in Glenrothes, the Balbirnie House hotel, a small country house hotel that achieves the highest standards of excellence and employs more than 100 people, is fleeced for more than £800,000 in tax and rates. That is more than £8,000 per employee, and it is only through innovative marketing, outstanding quality of service and tenacity in the face of adversity that the hotel has been able to consolidate its business.
We are clearly not on a level playing field, so a marked reduction in VAT on UK tourism is a no-brainer, to use a colloquial expression. I urge the Chancellor to heed the powerful arguments presented in this debate and reduce VAT on tourism. That would attract foreign investment and domestic tourists, create employment, encourage much-needed investment, promote sustainable growth and improve further standards in the industry. He must know that makes sense.
Mr Adrian Sanders (Torbay) (LD)
I congratulate the hon. Member for South Down (Ms Ritchie) on securing this debate. I repeat the message that the far south-west is open for business, particularly the spectacular English riviera. People might bag a bargain if they book their summer holiday there now, and I am sure that the hon. Member for Totnes (Dr Wollaston) and I will be there to welcome them, if we are free.
This is the fourth debate in which I have raised this issue, so it is not new. We have seen that Ireland, France and many other countries have successfully used VAT reductions as a stimulus for tourism, which has been disproportionately affected by the recession, both overseas and here. There is no doubt but that such a reduction would help areas, especially coastal towns, that have particularly weak local economies. It is therefore puzzling that the Government have so strongly ruled out looking at how to help the tourism industry. On the one hand, there is rhetoric from the Prime Minister and senior members of the Government saying that the UK should be the most competitive economy in the world, and woe betide any suggestion that we increase tax rates, lest that scare off investment; but on the other hand, there is a twisted adherence to a particular idea of credibility that insists that we do not want to minimise the burden on businesses and consumers.
I specifically mention credibility because it has been the bulwark of the Government’s argument against VAT cuts. That argument misses a vital point, because credibility is not particularly quantifiable and is decidedly context-specific. One could argue that the inconsistencies in the Government’s fiscal approach undermine economic confidence and credibility more than the state of the figures produced by the Treasury. If the Government chose to, they could incorporate VAT cuts into a narrative of growth, prosperity, stability and a competitive economy. Those cuts can and should be a credible and legitimate approach. We have long heard the message that we have structural economic problems that require long-term solutions. It is not as if a VAT reduction would be a fiscal disaster. What we lost in VAT revenues would be regained within a few years by greater income tax revenue from the estimated 200,000 jobs that the reduction would create, and significant savings on out-of-work and low-wage benefits.
I have several tourism businesses in my Torbay constituency, and the tourist trade represents the biggest contributor to the private sector locally. We have some of the toughest economic conditions in the UK, with the associated social ills of poor health and housing, high rates of teenage pregnancy and drug dependency, low educational achievement and aspiration, and so on. Driving local economic investment is the only way out. Thankfully, the Government have realised one part of that and are investing locally in business infrastructure, such as the Kingskerswell bypass, but we need to do more.
The main thing local businesses point out to me is that the UK is one of only four EU members not to exercise its discretion somewhere within tourism and leisure spending. We already have high costs compared with much of Europe, and that unnecessarily harms businesses when they try to attract visitors. South-west England has a great deal to offer, but when it is cheaper to visit just about any other country in Europe, how can we even start being the most competitive in the global race?
Sammy Wilson (East Antrim) (DUP)
I thank the hon. Member for South Down (Ms Ritchie) for her speech on the impact of VAT on tourism. I take issue with what she and my hon. Friend the Member for Strangford (Jim Shannon) said, because I look across the Belfast lough to their constituencies, which are shrouded in mist and doused in rain, from the stunning coastline and glens of Antrim, which are bathed in sunshine.
I understand the Minister’s dilemma. He is being battered in all directions by people pleading special cases. As he contemplates this issue, he should think of one thing: what principles have the Government and the Chancellor laid down on the tax regime? The first is that tax changes should be judged by their impact on growth and efficiency. As the Minister contemplates that, I draw three facts to his attention. First, 19 Governments across Europe have reduced VAT on tourism, and some of them have done that not when fiscal times were good, but when they were difficult. France in 2009, Germany in 2010 and the Irish Republic in 2011 all did that when facing the same problems as the Minister. They made a judgment that, because of the tax elasticity in demand for tourism, there were benefits, and that has proved to be the case. Some 28,200 new jobs have been created in France, with 15,000 businesses saved. Tourism in the Irish Republic is up 16%.
Secondly, I do not want to go into the issue of the model, which has been referred to time and again, but that model shows that a reduction in VAT on accommodation and tourist attractions would be four times more efficient at generating GDP increases than the 2p reduction in corporation tax that the Government have announced. Extending that VAT reduction to food would be three times more efficient at generating GDP than the corporation tax reduction.
Thirdly, to be parochial, the estimates for the Northern Ireland economy show that a VAT reduction could result in 10,000 new jobs in the tourism industry, a 50% increase in tourism revenue and a 40% increase in the number of hotel industry jobs. All those jobs would be available to young people and would help deal with youth unemployment. The reduction would also help increase investment in hotels. One hotel owner told me that they take £500,000 a year, and a 15% reduction in VAT would give them £75,000 to invest in facilities and to train and take on new staff. I hope that the Government will listen to those arguments.
Nick de Bois (Enfield North) (Con)
I draw Members’ attention to my declaration in the Register of Members’ Financial Interests. I am also the chair of the all-party group on the UK events industry. I commend our report on the international competitiveness of the UK events industry to the Minister and to Members. That report is relevant to today’s debate, because I want to draw a distinction between business tourism and leisure tourism. Business sector tourism is defined as conferences, meetings, exhibitions, trade shows, corporate hospitality, music industry festivals and sports events, and that sector is worth £36 billion per annum to the UK economy. The industry forecasts that that will rise to £48 billion by 2020. It is worth noting that business visitors to the UK spend £131 a day on average, which is 72% more than leisure visitors. Visitors from overseas spend nearly 200% more on business trips, so the issue applies as much to the business sector as to the leisure sector.
The Minister will be interested to note that there are more than 25,000 businesses in the sector, including organisers, venues, suppliers and direct marketing organisations, representing roughly half a million full-time jobs. The international inbound event industry not only advertises Britain as a place fit to do business with in the permanent long term, but drives additional leisure tourism traffic. The many varied items that bring people to choose the UK, and London in particular, as a destination of choice are all discussed in our report, but I highlight the impact of the delegate fee for visitors. That is critical when choosing whether to come to this country for events, and our VAT position puts us at a competitive disadvantage. The league tables show that the UK is one of the top 10 countries for international meetings, but we are dwarfed by countries where VAT is outside the scope of being reclaimed. That reclaiming adds to the cost of visitors coming to this country. The USA, Japan and Singapore all dwarf us, as do other European countries that have lower VAT rates.
Whether the industry thrives or survives is not just down to VAT, but VAT influences decisions on where to hold events. I urge the Minister to understand that the impact both on the business events industry delegate price, which will influence choice, and on the subsequent leisure prices represent significant leverage in the pursuit of the industry’s goal of £48 billion in attendee expenditure by 2020. I commend the report to the Minister; in it, he will see the argument set out in great detail.
Shabana Mahmood (Birmingham, Ladywood) (Lab)
I congratulate the hon. Members for South Down (Ms Ritchie), for Brighton, Pavilion (Caroline Lucas) and for Strangford (Jim Shannon) on securing the debate. It has been well attended, as proven by the time limit on speeches. We have had some brilliant contributions, some of which were rather fast-paced as people struggled with the time constraints. The debate has served as an important reminder of the importance of tourism to UK plc, and we heard some compelling arguments in favour of supporting the tourism sector and for reducing VAT to improve the sector’s international competitiveness.
The hon. Member for South Down opened the debate with a powerful speech. Her comparison of the UK and the Republic of Ireland was particularly forceful, and she spoke impressively on the potential impact on youth unemployment, given the relative youth of those employed by the tourism sector—a point that was also expressed by the hon. Member for Brighton, Pavilion. A connected point was made about low pay in the tourism sector, so the work force being relatively young is not the only issue. I am sure that all hon. Members will agree that tackling low pay in the sector is important not only for individuals who want to be paid more, but for the growth of the economy overall.
The hon. Member for Totnes (Dr Wollaston) made me smile when she said that, if God were designing the best constituency, he would create Totnes. I would of course argue strongly in favour of Birmingham, Ladywood. I was a little worried after her speech that every contribution would turn into a PR pitch for individual constituencies. One or two Members did indulge in that, so we will have to agree to disagree about the relative merits of the places that we represent.
The hon. Lady also expressed solidarity and support for those struggling with the floods, and I join her in expressing that sentiment. People are suffering desperately, and we must work together to get them the help that they need and to tackle the long-term issues that have led to the problems.
The hon. Member for Ceredigion (Mr Williams) said that his constituency is open for business, but the country should also be viewed as such. We are a favoured destination for tourists and rank as the seventh most-visited country in the world. We hold a unique position in terms of culture, heritage and language that makes us a destination of choice. Regardless of our position on VAT and expense, we are still well visited, and we should continue to reinforce that at every opportunity.
I will require photographic proof from the hon. Member for East Antrim (Sammy Wilson) that there is sunshine in his constituency given the horrible weather that we are experiencing at the moment.
I am interested in the all-party parliamentary group for the UK events industry’s report, which was mentioned by the hon. Member for Enfield North (Nick de Bois), who is the group’s chair, and the distinction between leisure and business visitors. I will discuss the matter later in my speech.
I will disappoint hon. Members today by not making a spending commitment to reduce VAT for the tourism sector. I apologise for that, but I would get into a lot of trouble if I did. I acknowledge the passionate views of Members present and the strong arguments of the Cut Tourism VAT campaign, but the Opposition’s stance is that an incoming Labour Government in 2015 will inherit a difficult financial situation. Deficit reduction alone does not make for a successful economic policy, but it is a necessary and important part of it.
Caroline Lucas
I thank the hon. Lady for giving way, but does she not accept what several hon. Members have said: precisely at a time of economic difficulty, we should be investing to get people into jobs and thus paying taxes to the Revenue? The idea that VAT should not be cut because we are in a time of economic difficulty indicates a misreading of the situation.
Shabana Mahmood
I am grateful for the hon. Lady’s intervention, and I will in a moment explain why I cannot quite go as far as she would perhaps like.
Although we are determined to build a fairer society and to deliver the long-term changes that our economy needs, including rebalancing, of which the tourism sector could and should play an important part, we must ensure that the sums add up. We will therefore not be able to reverse all the cuts and tax rises that this Government have pushed through to date, but we have had well-documented disagreements with the Government over VAT.
Although we are too far away from the general election to make detailed commitments across all the areas that may appear in our manifesto, we know now that we will face difficult choices. The Government’s day-to-day spending plans for 2015-16 will be our starting point, and we will not borrow any more for such spending. Any changes to the current spending plans for that year must and will be fully funded. That is not only a statement of our current economic policy, but an invitation to those involved in the VAT campaign perhaps to present some proposals that might work under the tests that we have set for policies come 2015, and I can confirm that my hon. Friends the Members for Barnsley Central (Dan Jarvis) and for Eltham (Clive Efford) are already working closely with the tourism sector.
Although I cannot commit to the VAT cut that the campaign calls for, I can commit to engaging in the conversation and working with the shadow Business, Innovation and Skills team, the shadow Culture, Media and Sport team and the shadow Treasury team to examine what else we can do to support the industry and to ensure that it plays its full part in getting us towards sustained economic growth.
Tourism is one of the UK’s biggest employers. The sector provides 9% of total jobs and contributes £134 billion to the economy, with revenue increasing by £9 billion last year. As I said earlier, we are the seventh most-visited country in the world. It is important that we continue to engage in the conversation and with the campaign to ensure that we support this vital industry as much as possible.
One or two Members touched on this topic, but we have not discussed in detail immigration policy and whether we make ourselves as easy to visit as other countries. The visitor visa regime has well-documented concerns, for example. On this subject, I speak not only as a shadow Treasury Minister, but as a former shadow universities and science spokeswoman. Higher education is our seventh largest export industry, and there is tension between the economic benefits, which are similar to those of tourism, and effective immigration control.
Our regime for visa applications, fees and monitoring to avoid over-staying is not the simplest. There is particular tension with the countries that we deem to be at risk, from where we may expect people with visitor visas to visit with the intention of over-staying. Countries that have historically been placed in that group, such as India, can actually be those from which we benefit greatly. In tourism, for example, growing numbers of genuine visitors want to come to this country, spend their money and help to boost our economy, while having a great time. It is important to resolve that tension, so that those growth sectors do not suffer unnecessarily and so that we get the maximum benefit from our tourism policy.
We cannot agree now to the cut that has been called for by campaigners and hon. Members present for the debate; however, we are committed to working closely with the sector. We will take seriously other help for the sector that does not have cost implications, including immigration changes.
The Exchequer Secretary to the Treasury (Mr David Gauke)
It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate the hon. Member for South Down (Ms Ritchie) on securing the debate and putting her case so strongly and on the fact that the debate is so well attended. Her constituency is known as one of the most beautiful in the United Kingdom, but I appreciate the strong case made by several other hon. Members for their constituencies to be on that list. In the interest of time, I shall not attempt to comment on each of those areas, but I can reassure hon. Members that the Government appreciate the value and importance of the tourism sector. Ministers from the Treasury and the Department for Culture, Media and Sport have been working closely with the industry to increase inbound and domestic tourism.
VAT is governed by EU law, which strictly limits reliefs. However, as hon. Members have pointed out, VAT law allows member states to implement certain reduced rates of VAT, which are listed in annex III of the VAT directive, at the discretion of the member states. Two of the reliefs are
“accommodation provided in hotels and similar establishments, including the provision of holiday accommodation and the letting of places on camping or caravan sites;”
and restaurant and catering services, excluding alcoholic drinks. As several hon. Members have pointed out, when the list of optional reduced rates of VAT entered into force in 2006, the UK opted not to implement those two reliefs and has maintained that position since.
Several other member states have chosen to implement a reduced rate of VAT on tourism, but the Government have yet to find any evidence of a causal link between VAT rates and tourism activity. Comparisons with other countries tend not to take into account the significant VAT reliefs that the UK provides for cultural attractions and public transport, or the other tourist taxes that other member states choose to levy. In addition to the sector-specific reliefs, the UK’s VAT registration threshold is the highest in the EU. Therefore, many tourist attractions do not have to charge any VAT to their customers. It is interesting to note that France, which is often the country quoted as reducing the rate and reaping the rewards, put its VAT rate on restaurant services up from 7% to 10% in January. Also, many businesses in the tourism sector are small businesses and will benefit from the £2,000 cut in national insurance contributions—the employment allowance—that will come into effect in April.
As I mentioned, Treasury and DCMS Ministers have discussed the Cut Tourism VAT campaign, and I have met campaigners and engaged in correspondence with them about the report mentioned by the hon. Member for South Down, among other things. The campaign’s analysis assumes that the revenue shortfall associated with a VAT cut should be met by increasing Government borrowing, but the latest figures from the Office for National Statistics suggest that reducing VAT to 5% for all catering services provided by restaurants, pubs, cafes and canteens would cost the Exchequer between £9 billion and £10 billion a year. Cutting VAT to 5% for accommodation would cost the Exchequer an estimated £2 billion a year. I do not have to remind hon. Members that those costs would have to be met by increasing other taxes, which would be likely to affect growth and jobs adversely elsewhere in the economy, by reducing spending or by increases in borrowing. That would be contrary to the Government’s long-term economic plan and risk raising interest rates, undermining the recovery and adversely affecting families and small businesses.
Jim Shannon
Many hon. Members spoke in the debate about the jobs that could be created; the figure for Northern Ireland was almost 15,000. Those jobs would result in taxes being paid and people coming off benefits. What weight has the Minister given to that part of the equation, in the figures he has just outlined?
Mr Gauke
I reiterate that funding the cut by additional borrowing would be contrary to our long-term economic plan to get the deficit down and put our public finances in a credible position. It would entail a risk to the recovery. As all hon. Members know, the Government’s priority is to tackle the record budget deficit decisively but fairly and to restore confidence in the economy and support the economic recovery. The conclusion that we reached, therefore, which I announced in Parliament last year, is that a VAT cut would not produce sufficient economic growth to outweigh the revenue shortfall. I have not seen any new evidence since then that has led me to revisit that conclusion, so, at present, the Government have no plans to introduce a VAT cut for the sector.
Ms Ritchie
The Minister will be aware of the report of Professor Adam Blake, who I understand is a Treasury adviser, and who used the Government’s computable general equilibrium model and maintained that it would be possible for a reduction in VAT on tourism to end up fiscally neutral. Has the Minister a comment to make on that, and did he talk to Professor Blake about the report and to Deloitte?
Mr Gauke
I think that I have touched on that, but I want to emphasise that the figures produced by the industry and Professor Blake represent independent research; the Treasury has engaged with the campaign and has concluded that VAT cuts would lead to a significant revenue shortfall. I could go into more detail about the modelling, but because of the time I will not. We do not accept the conclusions that the hon. Lady refers to.
A more targeted VAT cut, on a regional basis, is not possible under EU VAT law, because a single rate of VAT for a particular good or service must apply throughout a member state. A reduced rate for Northern Ireland is not possible, and it is also not possible to distinguish between tourists, locals and people on business who use a restaurant or hotel. However, I reassure hon. Members that we recognise the importance of the tourism industry and remain committed to a wide range of measures to support the sector.
Since 2011-12, we have put £37 million into the tourism pillar of the GREAT campaign, which in 2012-13 generated a return of more than 400,000 visits to the target cities; those visits brought in £200 million, which is a return of 8:1 on the investment. Between 2011 and 2015, we are spending £50 million on a tactical marketing campaign via VisitBritain, with a further £50 million match-funded by the private sector to market what the UK has to offer overseas. Between 2011-12 and 2014-15, we are spending £10 million on a campaign to encourage domestic tourism, which has already generated about £300 million in additional spending. There are also good results in Northern Ireland, where in the 12 months to September there was an 8% increase in the number of visits compared with the previous 12 months.
We are taking action to help the tourism industry, but a cut in VAT would be expensive and would create a revenue shortfall. That would put the Government’s economic credibility and long-term economic plan at risk.