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Nadine Dorries (in the Chair)
No time limit has been allocated to speeches in this debate. I have seven Members down to speak, but there are a lot more than that in the Chamber, so if you wish to speak, you will have to catch my eye. With interventions considered, if Mr Williams takes only 10 minutes to introduce the debate, Members will have 10 minutes each, but there may be less time than that, so some brevity would be appreciated.
Mr Mark Williams (Ceredigion) (LD)
I am grateful for the opportunity to have this debate and it is a pleasure to serve under your chairmanship, Ms Dorries. In the midst of Wales tourism week and on the eve of the Budget, I would like to make the case for a reduction in the VAT rate for the tourism industry from 20% to 5% specifically, and importantly, for visitor attractions and accommodation, to bring our country into line with competitor destinations in the European Union.
The Minister has been well lobbied on this issue and perhaps he gets tired of hearing the arguments that some of us advance for that cause, but I would like to draw his attention to research published recently on behalf of the Cut Tourism VAT campaign. I am aware that the campaign recently met Treasury officials. The research further strengthens the case for making a change in our VAT regime. That case is borne out by the number of Members here for the debate representing constituencies across the United Kingdom.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
As the hon. Gentleman is mentioning the diverse, wide range of constituencies, this is an opportune moment to say that I have had correspondence from Shonnie MacRitchie from the County hotel in Stornoway, who points out that the UK is the 138th most competitive of 140 for VAT in tourism. Indeed, there are only two other countries in the EU that have not reduced that VAT rate. That could be done now without any derogation from Europe, so does he agree that it should be done?
Mr Williams
I am mindful of your stipulations, Ms Dorries, but I very much concur with that intervention. The debate is about making all component parts of the United Kingdom competitive across the board with our friends and colleagues in Europe. There are few constituencies—in fact, I cannot think of any—that would not benefit from a reduced rate of VAT, whether through accommodation or visitor attractions.
Mr Adrian Sanders (Torbay) (LD)
On that point, my constituency would benefit by about £10.5 million as a result of such a change. This is about not just the tourist resorts, but the inner cities, which will benefit even more. It is a question of how we get the support of MPs from areas not known for tourism—particularly those from London—which will benefit enormously.
Mr Williams
I am grateful for that intervention. My hon. Friend is right: the name “English riviera” speaks for itself about the importance of the tourism sector to his constituency. He is right that more generally it would benefit just about all component parts of the UK: cities and rural areas alike. That is the spirit in which the debate and the Cut Tourism VAT campaign’s call has been made.
Anne Marie Morris (Newton Abbot) (Con)
Does the hon. Gentleman agree that there is perhaps a particular challenge in those parts of the country that are overly dependent on tourism? In the south-west, tourism is a substantial part of our economy.
Mr Williams
My hon. Friend is right that the debate has a strong, important regional dimension. That is borne out by the representatives here today.
Such is the nature of the debate, with it being a few weeks before Dissolution, that it could be something of a damp squib. However, I would rather raise this matter with the Minister before the Budget than after it. In many ways this is an opportune moment to remind ourselves of the importance of the tourism sector. In Wales, we are celebrating Wales tourism week in which thousands of our local hoteliers and attraction owners will be showcasing what Wales has to offer. What better way is there not just to celebrate what is happening in the industry at the moment, but to promote its opportunities for growth? That is what the debate is all about.
The tourism sector currently contributes £3.1 billion to Wales’s GDP, which is 6% of its total. It also accounts for 8% of jobs in Wales—a huge number. When we add in those supporting businesses down the supply chain, we see that the sector contributes about £7 billion to Wales’s GDP, which accounts for 14% of the Welsh economy and 15% of jobs.
Quite rightly, the promotion of the Welsh tourism sector is a devolved responsibility. Visit Wales does a lot of excellent work in promoting the Principality, but on VAT it is the Treasury and this place that has primacy and that is why we are asking for action. The debate is about sustaining the tourism sector, but, critically, it is also about growing it. I believe that this could give the industry the financial jolt that it needs.
Mr Mike Hancock (Portsmouth South) (Ind)
The hon. Gentleman is coming on to sustainability. We are looking not only to make jobs, but to sustain those already there. Many people in the industry are finding it difficult to keep going, but if a VAT cut were to be implemented, that would go an enormous way towards retaining those jobs.
Mr Williams
The hon. Gentleman is right. It is also about sustaining and building on the quality of jobs in the industry. That is important. Traditionally, the level of wages in the tourism sector has been low. However, I am confident that any VAT cut would feed its way through to wage increases as well.
Caroline Lucas (Brighton, Pavilion) (Green)
Will the hon. Gentleman give way on that point?
Caroline Lucas
I am grateful to the hon. Gentleman for giving way and congratulate him on the debate. When it comes to jobs, does he agree that lots of young people find jobs in tourism, so the benefits of increasing tourism will go disproportionately to them, which would be good from a social perspective?
Mr Williams
The hon. Lady is right that it is about developing for a social perspective and building a skills base for the future. Many parts of the tourism sector are ideal way for doing just that.
I will proceed and not take any more interventions. The Cut Tourism VAT campaign commissioned a report by Nevin Associates Ltd, which suggests that a change in VAT would give the UK a £4 billion economic boost, with £166.5 million coming to Wales. There would be 6,000 more jobs in Wales and 120,000 across the UK. In my constituency, with its vibrant local tourism sector, that could amount to a £5 million injection into our economy.
My hon. Friend the Member for Torbay (Mr Sanders) talked about a £10.5 million impact in his constituency, but £5 million would be very important to Ceredigion’s economy. That could create 166 jobs directly and many more indirectly.
Let us look at the arguments borne out of the research a little more closely. First, we need to talk about the increased tax revenue for HM Treasury. Research indicates that, yes, there would be a net revenue loss to the Treasury for the first two years, but after five years such a move would generate a positive net value of £668 million and over 10 years that value could reach £4 billion. Those are significant figures.
Where does that money come from? The research indicates six key areas. First, there will be lower prices, which will create greater demand and much higher turnover in the sector. Secondly, the Treasury will receive increased income tax and national insurance payments generated by the new jobs that we have talked about and, critically, by higher wages in the sector. Thirdly, there will be savings in social security payments as a consequence of lower unemployment, with some of the new jobs created in the sector taken up by those who were previously unemployed. Fourthly, there will be increased corporation tax payments as a result of the higher turnover and growth in those businesses that we all aspire to. Fifthly, there will be an increase in income taxes paid on dividends to shareholders, which would be generated by the accommodation and attraction sectors. Sixthly, there will be the multiplier effect of the additional taxes generated down the supply chain from the accommodation and attraction industries.
I think back to debates and the petitions presented at the time of the VAT measure on static caravans, which stemmed from an unfortunate Budget. I am sure that tomorrow’s Budget will be vastly more successful than that. I remember talking to operatives in my constituency about that very narrow thing, the sale of static caravans in west Wales, and the knock-on effect of the reduction on VAT was immense. The highly integrated nature of the tourist economy was clear in that debate, so the knock-on effects of this change could be hugely significant for the rest of the economy. As I said to my hon. Friend the Member for Newton Abbot (Anne Marie Morris), it would be a real boost for regional economies and tourism-dependent areas such as mine. In my local economy, if we take out the big employers, such as the national health service, the local authority and two universities, a cross-section of small businesses is left, largely involved in farming and tourism, and we need to grow those businesses.
I move on to the impact that this change would have on the UK’s balance of trade. New research published in this area has provided information that was not considered before; the research shows that a significant boost would be provided to the UK’s exports. That is important, given the internationally competitive nature of the sector and concerns about the UK balance of trade deficit. In 2013, tourism expenditure by overseas visitors to the UK was £21 billion, which accounted for 3.8% of the UK’s total exports of £550 billion. Over a 10-year period, the research by Nevin Associates Ltd indicates that the total improvement in the UK’s balance of trade in response to a VAT cut would be £20 billion, which is a huge potential contribution.
The other area of growth is the number of businesses paying VAT. We all know that the UK tourism industry is populated by a very large number of very small firms that may or may not choose to expand or invest in order to keep below the VAT threshold. If my hon. Friend the Member for Aberconwy (Guto Bebb) is called to speak, he may want to talk specifically about the issue of VAT thresholds. Lower VAT would encourage these companies to register for VAT and develop their businesses.
Dr McCrea
I congratulate the hon. Gentleman on securing the debate. He has been emphasising all the pluses and why we should be acting to reduce VAT, but has he made an assessment of the likely effects on the economy from failing to act on reducing the rate of VAT to accommodation, restaurants and visitor attractions?
Mr Williams
Well, I am specifically talking about visitor attractions and accommodation. In this House we are all united by one thing: we want to see our economy growing and thriving. My contention is—I think it is the contention of most people in the Chamber today—that reducing VAT is a strong way of boosting our economy. Lower VAT would encourage these companies to register for VAT and develop their businesses. In France, the amount of businesses falling outside the tax regime has been cut by an estimated €720 million a year, following hospitality VAT reductions.
As the Minister is aware—this is the root of this debate—differential rates of VAT can be introduced due to EU legislation, and all but three countries in the EU have a reduced rate of VAT on the tourism sector. Only the UK, Denmark—which has no reduced rates for goods or services—and Slovakia have not reduced rates. Lithuania used to have no reduced rate, but in January, they lowered their rate of VAT on hotel accommodation to 9%.
Looking at the Irish experience—perhaps pre-empting comments from friends from Northern Ireland today—according to the review of the policy in Eire by the Irish Government, who cut tourism VAT in 2011, they have seen employment increase by 20,000 people directly in the tourism sector. Operators have passed VAT reductions down to customers and as a result, we have seen a sustained growth in tourists and earnings, meaning that what was a temporary measure is now to become a permanent one.
The Minister will also be aware of the work of Professor Blake and the evidence session of the Select Committee on Culture, Media and Sport in which he spoke in January. He concluded—he is a former Treasury adviser—that reducing tourism VAT was a very efficient tax reduction for two reasons. First, he said that VAT on tourism was not an efficient way of creating revenue, as tourism was an elastic product, meaning that demand would go up as well as down. Secondly, he said that tourism VAT was a tax on domestic goods while foreign goods were being left untaxed. Therefore, that made the VAT highly inefficient, as customers will buy foreign goods over domestic ones. Those of us who are trying to promote growth in the domestic sector want people to have holiday weekends in Aberystwyth and Aberaeron, not over in Barcelona and Torremolinos. That is the nature of the competition that we face.
As part of the recent Select Committee on Welsh Affairs report, it was agreed to look at this issue. The Select Committee agreed and included in its recommendations to the UK Government that
“the UK Government review its policy on the VAT rate for…tourism…with the ultimate aim of reducing the current 20% rate.”
The Government rejected that. I am not expecting a miraculous change overnight on the basis of this debate, although that is what I wish for. However, I hope that at the very least, this debate will promote continued reflection on the matter by the Treasury. There is a message there for the Labour party as well, because sadly, to date, the messages we have had on this issue from Labour have not been particularly robust either. However, what I can say is that the Cut Tourism VAT campaign will continue to push the case as robustly as we can.
Finally, the global recession may well have been the main reason, between 2006 and 2012, for falling numbers of visitors to these islands. However, since 2013, we have experienced—Wales included—an upward trajectory, which we all celebrate. The Government, through VisitBritain, have put funds into promoting tourism to good effect, as have our Assembly Government in Cardiff. However, our contention is that there is a vast potential for growth. As the economy continues to grow, as deficit reduction yields results and as public finances are managed, the Government—whatever their political complexion—need to address this issue.
I detect a huge enthusiasm in large parts of this country for developing the tourism sector. There is a great deal of innovation and some really impressive personalities out there developing their businesses. Reducing VAT in this selective way—on accommodation and on visitor attractions—would be the biggest boost imaginable for our very important tourism sector.
Albert Owen (Ynys Môn) (Lab)
It is a great pleasure to follow the hon. Member for Ceredigion (Mr Williams), who is a fellow Welshman. We are having this debate in Welsh tourist week, and we have had a very good week promoting the pleasures that people can experience when they come to Wales.
I pay tribute to the Cut Tourism VAT campaign group for its excellent campaign. If the Chancellor is minded to make an announcement tomorrow and follow suit with what we are asking for in this debate, it would be a lot to do with the long-term work of the Cut Tourism VAT campaign, and indeed, the cross-party support that it has received.
I am very much an opponent of VAT. I believe that, as a consumer tax, it is regressive and hits the poorest in our society, an argument that I shall develop later. I agreed with the Prime Minister when he said, as Leader of the Opposition only a few weeks before the last general election, that VAT was a regressive tax and that it has had negative implications for the economy. I have been consistent in my view and I believe that the rise in VAT in 2010 sucked oxygen out of the economy at a very difficult time and held sectors back, including tourism.
Ian Lucas (Wrexham) (Lab)
Does my hon. Friend agree that the temporary reduction in VAT that the Labour Government introduced in the previous Parliament was successful in creating the growth that this Chancellor inherited from that Labour Government?
Albert Owen
Yes, indeed; it was a brave step. [Interruption.] It is interesting that we are getting heckled from across the Chamber by people who voted to put VAT up previously, but are campaigning here today to cut it. We are not going to take any lessons from some Members here in the Chamber today. I believe, as does the hon. Member for Ceredigion, whom I congratulate on securing this debate, that cutting VAT would give a great example to the industry.
In the past few months, I have spent time in France and the Republic of Ireland, where I have seen our near neighbours benefit from a cut in value added tax.
Mr MacNeil
I agree with what the hon. Gentleman is saying about VAT, but I have to ask him this: when VAT was increased in this Parliament, why did the Labour party abstain on that vote?
Albert Owen
I do not speak for the Labour party, and if the hon. Gentleman checks the records, he will see that I do not vote with the Labour party when I think that that is right. I speak for myself. Unlike the sheep in the Scottish National party, who are all herded through one Lobby, I tend to have a little independence of spirit and mind when it comes to these issues. I feel very strongly that the case has been made to cut VAT on this occasion and I will certainly support any amendment tabled in the Budget to ensure that there is a cut. I hope that Conservative Members who voted to put VAT up before but now support a cut will follow their conscience and vote to cut VAT for tourism.
Since 2012-13, there has been growth in tourism right across the four nations of the United Kingdom. It is a resilient industry, but it is the industry itself that is asking for a cut, because it feels that it could contribute so much more in employment and generating wealth for regional economies and the UK economy if there was a cut.
As the hon. Member for Ceredigion said, Ireland has reduced its VAT on tourism to 9%. Only last week, I was in the Republic of Ireland. We were launching the new vessel that goes between my constituency and Dublin. Holyhead to Dublin has been branded the new Dover to Calais, and as Dublin is one of the fastest growing ports in Europe, that benefits my constituency. Also, as we are near neighbours, the vessel takes people, who come from places across the United Kingdom, from Wales to holiday in the Republic of Ireland. My colleagues from Northern Ireland will have experience of this. The crossing from Holyhead to the Republic of Ireland takes only two hours. Many tourism operators that book people going to Ireland overnight say that one reason why they are going to Ireland is that the Irish Government have focused on tourism, focused on the brand and focused on how tax reductions on accommodation help the industry.
Mr Gregory Campbell (East Londonderry) (DUP)
Does the hon. Gentleman agree that many hotels that offer discounts and packages such as short-stay breaks, particularly in Northern Ireland, Wales and on the western fringes of Scotland, find that they are impacted by the very attractive bargains that can be offered by their counterparts in the Irish Republic precisely because of the VAT rate?
Albert Owen
Absolutely. That is the case I am making, and I am sure that colleagues from the south of England will see the same with France and, in particular, northern France and the Dover to Calais route.
This campaign, as I said, has been industry led. It has been led well by the industry, which has made a very articulate case. However, I believe that the campaign should also be people focused, because a lot of jobs could be created and many of the people who would be affected positively by a cut—
Albert Owen
Before the break, I indicated that the campaign had been brilliantly led by the industry, but that we needed to focus on people and get the message across to the great British public. Cheaper and more fairly priced holidays for consumers in the UK would help those with low earnings considerably, because VAT disproportionately affects such people. I believe that VAT at 20% is simply too high. When a working-class family of four go out for a meal, they share a fifth of their bill with the Chancellor of the Exchequer. In a sense, everybody who goes out for a meal takes the Chancellor with them, because they have to pay 20% of the total to the Treasury. That is too much for many families, and it has reduced many people’s spending power.
A cut in the VAT rate would also have a positive impact on jobs. As has been indicated, most of the jobs that have been created in tourism are low skilled and for young people. I welcome any reduction in youth unemployment, which has been stubbornly high. Those who work in the industry have indicated that one of the first things that they would do if VAT were cut is employ more people, to provide a stimulus to their businesses and to the sector. In my constituency, an estimated 120 jobs would be created, which would boost the local economy by some £3.8 million. The measure could bring huge sums of money into local economies and the UK Treasury in the long term. I understand that it will be difficult to convince the Treasury when there would be, in the first instance, a hit on moneys that are coming into the Treasury—
Nadine Dorries (in the Chair)
Order. Mr Owen, you have had almost eight minutes, and I will have to restrict other speeches to six minutes. If you could draw your remarks to a close soon, that would be good.
Albert Owen
I misunderstood you, Ms Dorries. I thought that there was no time limit.
Albert Owen
There is now, and I will abide by it. As someone who has consistently opposed increases in VAT, I believe that a reduction would help local economies, the tourism sector and the low paid in our society. It would be good for the country and good for jobs. I hope that the Treasury, on the eve of the Budget, will reconsider. If we are going to have a give-away Budget tomorrow, let the Chancellor give way on that important issue.
Mr Geoffrey Cox (Torridge and West Devon) (Con)
It is a pleasure to serve under your chairmanship, Ms Dorries, for what I believe is the first time.
Torridge and West Devon, which I have the privilege to represent, is a tapestry of small tourist businesses. In common with many hon. Members who are in the Chamber today, I represent a coastal area as well as a large rural area. Across the length and breadth of the south-west, particularly in my constituency—my hon. Friend the Member for North Devon (Sir Nick Harvey) is here, and he will know what I mean—there is an enormous yearning for something that will boost the tourism industry. Along with agriculture, tourism is the backbone and staple of Devon, Cornwall and the south-west. We are waiting for something that will bring the benefits of the recovery to the south-west. Throughout the south-west, there is a growing consensus—not only from the tourism industry, but from other regional figures who have examined the economy—that a cut in VAT on the tourist industry would provide such a boost.
We have debated the matter on two or three occasions. In 2011, my hon. Friend the Minister said that it was too early to cut the rate of VAT, that we had not taken into account the impact on the economy and that we should not jeopardise our efforts to bear down on the deficit. We all understood in 2011 that it was important not to shake international confidence, and to keep interest rates low. We returned to the subject in 2013, when he told us that the problem was that the Treasury’s analysis produced figures that were different from those of the Cut Tourism VAT campaign. He said that according to the Treasury’s analysis, there was no equivalence between the potential gains from the cut and the loss of tax revenue in the first few years. He said so again last year. Why, then, does independent, third-party research from some very serious figures, such as Professor Blake and Deloitte, conclude that although there would be a revenue fall in the first two or three years, it would be more than made good by the economic activity generated in the sector, which is critical all over the country?
I submit that we must ensure that we do not create an uneven recovery that fails to reach all parts of the country. In the south-west, although we are enormously grateful for the effects of the Government’s stewardship and their long-term economic plan, which are reaching us, pockets of our economy have not yet fully come back to health. This measure is a golden wand that would conjure into life confidence, buoyancy and a willingness to invest. I urge the Minister to commend it to the Chancellor of the Exchequer.
Torridge and West Devon is one of the lowest-waged areas in the country. It shares all the traditional disadvantages of coastal areas, and tourism is its most important staple. I urge the Minister to listen to the campaign and to the voices of my hon. Friends and Members from all parties who say that one of the most important things that can be done to reach those hard-to-reach areas—across the economy, including in inner cities—is to provide that boost.
The Irish experience is positive. Our tourism industry is at a competitive disadvantage, compared with many of our neighbours. This important measure would give enormous assistance to hundreds of thousands of people, and provide important jobs in disadvantaged areas and to young people, as the hon. Member for Brighton, Pavilion (Caroline Lucas) said. I urgently commend it to the Minister.
Mr Mike Weir (Angus) (SNP)
It is a pleasure to take part in this important debate and to serve under your chairmanship, Ms Dorries. I congratulate the hon. Member for Ceredigion (Mr Williams) on bringing forward this issue.
I have been raising this matter for more than a decade. I first asked a question about golf tourism in 2004, at which time I represented the magnificent golf course at Carnoustie—sadly, I no longer represent it, due to boundary changes. I had no luck with the Chancellor at the time, and I have had no luck with Chancellors since.
Tourism is a vital part of Angus’s local economy. According to the Government’s official labour market statistics, tourism-related jobs account for a higher percentage of the workforce in Angus than the UK and Scottish averages, which is not surprising, given the wonderful mountain glens and coastal areas that we enjoy. Many other rural areas across all parts of the United Kingdom rely heavily on such jobs. The current campaign has a lot of support in Scotland, including from the Scottish Tourism Alliance.
Unlike many other parts of the European Union, there is currently no provision in the UK for charging a lower rate of VAT for tourism-related businesses, yet there is nothing to prevent the Government from doing so. For example, it has been done for hotel accommodation in 24 of the 28 European Union states, including Germany and France. The factsheet of the Cut Tourism VAT campaign shows that the UK has the second highest rate of VAT on hotel accommodation. It is exceeded only by Denmark, and it is equal to Slovenia, while Luxembourg’s rate is 3%, and Portugal, which is a major tourist destination, has a rate of 6%. Tourism businesses are fighting hard to retain business against cheaper destinations, and those lower rates give continental destinations a considerable advantage over businesses in the UK.
The 2013 World Economic Forum report on travel and transportation ranked the UK 138th out of 140 countries on the basis of price competitiveness. The VisitBritain website laments Britain’s lack of competitiveness for visitors from the USA, Australia, Canada, Germany, Austria, Belgium and the Netherlands. It showed that Britain has a clear competitive weakness in terms of value for money and expense. Ratings of holidays in Britain were below almost every major European destination for value and expense for both short and long-haul visitors. Britain was the only destination to have a negative balance, in terms of expense, compared with expectations.
The Government have not always been averse to cutting VAT on selective tourism-related operations. In the 2012 Budget, they cut the VAT charge on ski lifts, which was a welcome change—especially for businesses in the constituency of the Chief Secretary to the Treasury, which were the main beneficiaries. That vividly illustrates that it can be done and that it need not apply only to accommodation facilities.
Ireland’s 9% rate applies to facilities for taking part in sporting activities, including green fees charged for golf and subscriptions charged by non-member-owned golf clubs. A rate of that kind would be a boost for places such as Carnoustie. It puts the Irish at a competitive advantage, compared with the wonderful golf clubs in Scotland and other parts of the UK. In addition to that 9% rate, for some time Ireland had a 13.5% rate on some other services, including short-term car hire and tour guide services, which shows that a multitude of things can be done to assist tourism businesses.
The Government’s 2011 tourism strategy stated that they aimed to generate 4 million extra visitors by 2015. It said:
“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 biggest industries.”
I struggle to see how the GREAT campaign and simplifying visa applications for Chinese visitors, which seems to be all that has been done so far, could in isolation do anything to achieve those objectives. However, a cut in VAT would have a significant impact.
Clearly, there is a huge opportunity to increase employment by promoting tourism. One of the most effective ways of doing that is to cut VAT on tourism businesses, which is well within the Government’s power.
Caroline Lucas
Does the hon. Gentleman agree that there is a strong environmental argument for reducing tourism VAT? It would encourage more people to take domestic holidays in the UK, not just in Scotland, but in lovely Brighton Pavilion.
Mr Weir
I am sure that is the case. The hon. Lady can develop that argument if she catches the Chair’s eye.
It is not cheap to holiday in many areas of the UK. The standard rate of VAT puts our tourism businesses at a considerable disadvantage when competing with other parts of Europe. An increase in visitors would not only help tourism businesses, but bring much-needed income into many other businesses in the rural economy. The Republic of Ireland’s 9% rate—its standard rate is 24%—is calculated to have boosted the Irish economy by about €40 million and created between 5,600 and 35,000 jobs, depending on how the figure is calculated. The Irish Minister for Finance claimed in his Budget speech that it created 15,000 jobs. Various pieces of research have shown that a similar—perhaps a greater—effect could be achieved here, including Professor Blake’s work, which has already been referred to.
A VAT cut would reduce the Treasury’s income in the short term, but it would generate a stimulus that created a large number of jobs and increased businesses directly and indirectly. It could lead to a significant, long-term increase in income that would have a positive effect on the whole economy. Research suggests that up to 123,000 jobs could be created in the UK, which could contribute a surplus to the Treasury of £3.9 billion over 10 years. Additional spending and growth in tourism and the wider economy could produce GDP gains of up to £4 billion per year.
The Irish experience suggests that the cost per job created by the VAT cut is about €23,000. That is a competitive rate for creating jobs—certainly, in rural areas of the UK. I urge the Minister, even at this late stage, to look positively at cutting VAT to give a much-needed boost to our rural economies.
John Pugh (Southport) (LD)
I congratulate my hon. Friend the Member for Ceredigion (Mr Williams) not only on securing this debate but on having campaigned vigorously for years on this theme.
I have only one point to make. I was standing in Strangers yesterday holding up a placard about VAT and tourism while pointing at a screen. I chanced to ask the person who had asked me to do that, when he put his camera down, how long the campaign had been running for. He said that it had been running for about 18 years, to his knowledge. Hon. Members can imagine people from the industry trooping into the Treasury during those 18 years to speak to stony-faced mandarins, who find reasons for inaction. Ministers will have come and gone during that time, but the Treasury’s line will be familiar to the people lobbying it.
I am sure that, in those discussions, the Treasury will have heard good words, such as “growth”, “expansion”, “development” and “jobs”, and phrases it does not want to hear, such as “forfeit of revenue”, “loss of income” and so on. However, a counter-argument has always been put, which I could put in terms of a Laffer curve if I actually understood what a Laffer curve was. In simple terms, the counter-argument is that if there is development and growth, there will be more taxpayers, and more business will be done, so there will be more revenue and other gains, such as regeneration, which other Members have spoken about. The real choice, as far as the Treasury is concerned, is between getting more tax at a lower rate from more people, and getting more tax at a higher rate from fewer people.
That seems to be the hard choice the Treasury faces, and it is at best cost-neutral. I am not sure that it is cost-neutral in the short term—no one has suggested that, I think—but it certainly is in the long term, and it has other benefits, including regeneration and reviving areas such as the south-west and north-west.
Sir Nick Harvey (North Devon) (LD)
With five visits being made outwards from the UK for every two incoming visits, would there not be an additional benefit, of improving the balance of trade?
John Pugh
Indeed. Many persuasive arguments would suggest a net benefit to the Treasury from what we propose.
Treasury scepticism is not wholly unreasonable, but it can be allayed. I do not think that international comparisons console the Treasury especially; perhaps the thinking is that such comparisons relate to foreign places where the world functions differently, and tax regimes and people’s behaviour are different, and therefore the Treasury is not satisfied by ample international evidence. Certainly it will not be satisfied by research, however good, commissioned by the industry.
There is a way forward, however. The solution is not simply inaction. The Treasury could commission its own independent research, on a basis agreeable to the industry. That would be a huge step forward—some progress in relation to the past 18 or 19 years. It would be a step along the path of evidence-led policy—a good step to take. We would all be amazed if tomorrow the Chancellor said that he had decided to cut VAT for tourism. We would fall about and do more than wave our Order Papers—we would go into paroxysms. However, he could, if he wanted, do something that would cost nothing and might attract a great deal of good will: he could say, “We will have some independent research commissioned on this very difficult subject on which Parliament has occupied itself for some considerable time.” That would lay the ghost to rest and bottom out the issue.
Why should the Chancellor not do that? It would be an intelligent reaction to the plausible and effective argument that has been put by a crucial industry employing many more people than is ordinarily to be expected. If the Chancellor does not do that, he could be embarrassed later by someone moving an amendment to require the exact same thing. I have little doubt that it would be carried, as there is widespread support in the House for such research.
Guto Bebb (Aberconwy) (Con)
It is a pleasure to serve under your chairmanship, Ms Dorries. I join other hon. Members in congratulating the hon. Member for Ceredigion (Mr Williams) on securing the debate, which is appropriate at the beginning of Wales tourism week. I was pleased to be part of a small group that welcomed representatives of the tourism sector to the Wales Office yesterday, and on Thursday and Friday I will be getting involved with that sector in my constituency, to highlight its importance to the economy there.
I am taking part in the debate very much in my constituency role. My constituency is the second most dependent on tourism in the country, if the experts are to be believed. It has everything from seaside resorts such as Llandudno to historical towns such as Conwy; it has the Conwy valley, and access to Snowdonia via Betws-y-Coed. Tourism is a vibrant and growing sector of the economy, and in many ways it shows what small rural businesses can do. The Government have a great track record of support for small businesses such as those in the tourism sector. Many will be sole traders, or husband-and-wife partnerships, and the significant increases in the personal allowance will make a difference to the profitability and value of those individuals’ businesses. The increase is a huge contribution to the well-being of those who run small tourist-related businesses.
The reductions in corporation tax also obviously have an effect, but just as important, from the point of view of a sector employing so many staff, is the introduction of the employment allowance—in effect a national insurance rebate. That makes a huge difference. Finally, there have been changes to business rates, including the business rates rebate, which also makes a difference to small tourism providers. So the story is not one of the Government ignoring the small business sector. There is plenty of evidence of support being offered to the sector; but we seem to have a problem getting the message across about whether a VAT reduction would make a significant difference.
I am persuaded of the evidence, but I agree with the hon. Member for Southport (John Pugh) that there is unlikely to be an announcement in the Budget tomorrow. However, it is important to keep a watching brief. I find it hard not to agree with the recommendation about an independent examination of the evidence. If it pointed clearly to a huge implementation cost, we could be persuaded that the Treasury is right in its approach to the issue; but if any independent evidence suggested that the campaigners’ arguments are valid, there would be a good reason to reconsider reducing VAT.
There are examples on which to build. I was one of the MPs who campaigned vigorously against the proposal to put 20% VAT on static caravans, and I am delighted to say that the Treasury listened. It is no bad thing for any Department to listen to points made by Back-Bench Members on behalf of their constituents. I was disappointed by the comments of the hon. Member for Angus (Mr Weir), who dissuaded me from thinking I might have any influence on Government policy. As I have a cable car in my constituency, I thought my efforts towards a reduction to 5% were just as important as those of the Chief Secretary to the Treasury.
Finally, I have spent a significant time on the Public Accounts Committee during this Parliament, and we have gone on and on about tax avoidance, which clearly we should strongly condemn. However, we need clarity about the fact that the tax system should not create a situation that discourages businesses from growing. That is exactly what 20% VAT in the tourism industry does. A good-quality local bed and breakfast whose turnover hits the £80,000 threshold has a choice: increase turnover to £96,000 to stand still, or close for the rest of the winter. I find it unacceptable when I see that small businesses in places such as Betws-y-Coed have opted to close for the winter, because, being honest individuals, they do not want to avoid paying tax that is due, but the challenge of increasing turnover to a level at which they will still benefit from their efforts is far too much. That vast threshold keeps businesses from growing. Any policy that prevents businesses from wanting to grow and serve their customers needs to be looked at again.
In considering the 5% VAT target for the tourism sector, the key thing for the Treasury to examine is whether the 20% threshold stops good businesses growing. If the evidence suggests that it does, action should be taken.
Mr Mike Hancock (Portsmouth South) (Ind)
It is nice to serve under your chairmanship, Ms Dorries. I congratulate the hon. Member for Ceredigion (Mr Williams) on obtaining the debate.
For the past 10 years, until last year, I was responsible for tourism and economic development in Portsmouth, and I cannot remember a time when, on visiting a tourist attraction, the first thing I was asked was not whether there was a chance of a reduction in VAT on that activity. An important issue is that many of those tourist attractions are on the cusp of survival. Some are working against the clock, trying to keep footfall to a level that sustains the jobs they provide. In my city, tourism brought in 10.2 million visitors, and the local economy has an annual tourist spend of £600 million—an awful lot of money. A lot more could be achieved if VAT were reduced.
Ferries operate out of my city to seven destinations in France, Spain and the Channel Islands, mostly in the months of May to September, and probably part of November. They are crowded with people from this country going to other parts of Europe. I look enviously at the way in which those people are treated on the other side, with cheap accommodation in first-class hotels, and attractions that are not pestered by a 20% rate of VAT. It would be to our enormous benefit if we could convince just a third of those tourists to stay in this country, but when I speak to tourists at the ferry port in Portsmouth and ask them why they have not decided to enjoy what we have to offer in Portsmouth, they say that our hotel prices are too high for a family of four or six, which we have to understand. Those hotels would see an enormous benefit from a VAT reduction almost immediately.
The figures provided by the Cut Tourism VAT campaign for the south-east and south-west, excluding London, show that 29,000 jobs would be created over a period of time. Okay, the Government will take a hit from reducing VAT from 20% to 15%, but can we really calculate what having 29,000 more people working in the economy will do for those people’s self-esteem, for the attractions in which they work and for the Treasury, which will benefit from the income of those people in gainful employment? We should not ignore the campaign, and I am sure that the Minister will not. He will have listened carefully to Members from across the political spectrum on this issue’s importance.
Sir Ben Ainslie’s sailing centre was recently built in Portsmouth, and we are grateful for the Government’s support. When tickets were advertised for an event to be held at the centre later this year, the whole allocation of 10,000 seats, which were offered to the people of Portsmouth, went in 24 hours. We expect 100,000 people to come for that event, but our problem is that we would like them to stay longer, rather than just coming for the day to watch the sailing attractions on the Solent. We would like to see them enjoy the other facilities, to fill our hotels and to generate income.
Portsmouth is important in the national scheme of things because it is the home of the Royal Navy, and we appreciate that much Government expenditure has gone into, and will continue to go into, the naval base, but the Government must support the most critical industry of all, which is fragile in many ways. Well over 12,500 people work in the tourism industry in my city, and many of them are in fragile job positions because of the cost of taking families into the various attractions. We have to do something, otherwise in the next Parliament there will be debates about the jobs that we have lost. I do not want that to happen; I am sure that nobody in this room, including the Minister, wants that. Let us be positive, and send the message to our colleagues in the next Parliament, and to Ministers in the next Government, that the tourism industry and cities that flourish because of tourism need the support that only the Government can provide. The best step forward would be to reduce VAT.
Jim Shannon (Strangford) (DUP)
It is a pleasure to speak in this debate, and I thank the hon. Member for Ceredigion (Mr Williams) for securing it. None the less, it is a source of frustration that we have previously debated this issue. We are in jeopardy of missing a fantastic opportunity for all our communities; that has been the thrust of every comment so far.
I declare an interest, because I represent one of the most idyllic and beautiful constituencies in the United Kingdom, if not the world. Although I realise that every Member present is envious—I do not doubt that for a second—I hope they will keep an open mind on VAT reduction, which could help their constituencies to thrive, just as it would help my constituency of Strangford. Today we celebrate St Patrick, the patron saint of Ireland, north and south, and it is always a pleasure to do so. It was my pleasure last week to attend Champ UK’s annual St Patrick’s day event, at which I heard Tourism Ireland’s fantastic news about the increasing attractiveness of Northern Ireland as a tourist destination. Tourists seem to gravitate towards the Republic of Ireland, but the Northern Ireland Statistics and Research Agency states that total overseas visitors to Northern Ireland for the first nine months of 2014 grew by 3%, which is a welcome development. However, we in Northern Ireland still fall foul of the Republic of Ireland’s 9% VAT rate, which was set in 2011.
David Simpson (Upper Bann) (DUP)
Across the United Kingdom and Northern Ireland, our golf clubs provide fantastic accommodation and food, but there is a distortion of VAT payments between proprietary clubs and member-run clubs. Surely that anomaly should be addressed. Doing so would create more employment and would be good for tourism.
Jim Shannon
My hon. Friend is right. Hospitality services—golf clubs, hotels, restaurants and attractions—all suffer as a result of VAT on tourism, and it is important that we try to address the situation. That feeling is particularly tangible in Northern Ireland because we share a border with the Republic, which has a much lower VAT rate. Although we have seen an improvement in visitor numbers over the past year, which is good news, the benefits of a VAT reduction might have assisted those numbers even further. We are four years behind the Republic in implementing this decision, and I ask why. There has been a long-running campaign by the hospitality industry in the United Kingdom to reduce the VAT rate below the standard of 20% for services supplied to tourists, and I re-emphasise the importance of that industry to our economy. Tourism makes up 10% of Northern Ireland’s GDP and provides 40,000 jobs, and the sector is still growing.
Roger Williams (Brecon and Radnorshire) (LD)
Does the hon. Gentleman agree that one of the main challenges for tourism in our constituencies is extending the tourist season? A reduction in VAT would make weekend breaks and mini-breaks all the more affordable and attractive.
Jim Shannon
That illustrates the case for a VAT reduction. The tourist industry gives so much to us: it gives us global status as a destination, and growth. The industry aims to create more jobs, improve services and enhance the hospitality experience for which the UK is renowned.
The British Hospitality Association, when questioning operators within the industry, received some incredible responses, of which I am sure the Minister is aware. Some 82% of respondents said that, in the event of a reduction in VAT, they would invest more in the service they supply; 67% would create further employment positions; 57% would provide more training; and just under half would increase wages. There is a clear indication from the tourism industry that it could do a lot more. Although I recognise that there are concerns about the restrictions on the room for manoeuvre on public expenditure, a decision to reduce VAT would have long-term benefits, not least of which would be tourism spending spilling over into all areas of the economy in Strangford, across Northern Ireland and across the United Kingdom.
It is important to rectify youth unemployment, and we can do that by expanding the tourism sector. In Northern Ireland we have a large number of enthusiastic young people who are taking tourism, catering and hospitality courses in a number of our South Eastern Regional colleges. There is clear interest and growth in the sector, and all we need to do is kick-start the sector. My local South Eastern Regional college in Ards in my Strangford constituency is training young people to an exceptionally high standard, and it is important to maintain excellence in this area. The launch of the Diageo tourism and hospitality academy, run by Belfast metropolitan college, is another indication of what we can do.
The Cut Tourism VAT campaign emphasises that British families and international visitors who choose a British holiday will pay almost three times as much VAT as they would in a French or German break, and twice as much VAT as they would in a break in Italy, Spain or the Republic of Ireland. Reducing VAT for tourism would help to lower prices all round, and it would incentivise families to take an annual trip that they might otherwise be reconsidering.
I have attended a number of events organised by Pubs of Ulster, and I believe that we should support the UK-wide Cut Tourism VAT campaign. Northern Ireland is home to some 10 breweries, and my constituency of Strangford is home to 63 pubs that support 672 jobs, 138 of which are for 16 to 24-year-olds, whom we should be encouraging. We have the attractions, restaurants, bars and locations, and it is now time to ensure that we can offer even more by asking the Minister genuinely and sincerely to consider reducing VAT.
Shabana Mahmood (Birmingham, Ladywood) (Lab)
It is a pleasure to serve under your chairmanship, Ms Dorries. I congratulate the hon. Member for Ceredigion (Mr Williams) on securing this debate and on his work to highlight the issue. We have heard some excellent and important contributions that have reminded us of the importance of tourism to UK plc, and the case has been passionately made for reducing VAT below the standard rate of 20% on services supplied to tourists, in order to improve the sector’s international competitiveness.
As we have heard, member states’ discretion to set lower rates on goods and services is limited by European VAT law, but there is a special dispensation for a lower rate on certain supplies associated with tourism, specifically including hotel accommodation, certain restaurant services and some types of admission charge, including charges for entry to amusement parks. Some member states have made use of that dispensation to charge lower rates, including the Republic of Ireland, which introduced a lower rate of 9% in July 2011. We heard a bit more about that from some hon. Members in their contributions.
The campaign is long-running. This is the second debate on the topic in which I have taken part; the previous one took place almost exactly a year ago, ahead of last year’s Budget, and was secured by the hon. Member for South Down (Ms Ritchie), the hon. Member for Brighton, Pavilion (Caroline Lucas) and the hon. Member for Strangford (Jim Shannon), from whom we have just heard.
The hon. Member for Ceredigion made a powerful opening speech focused partly on his constituency and the impact that a VAT reduction could have on the Welsh economy. He also made the point about a potential link between a VAT cut and economic growth. I take slight issue with his assertion that the Labour Opposition have not been robust in our approach to this matter; we have been robust, but unfortunately the answer that we have arrived at is similar to the Government’s rather than being the answer that he and others hoped for. Those hoping for a different answer from us and the Government include members of our own party; I acknowledge the role of Labour Back-Bench Members in the campaign, including that of my hon. Friend the Member for—is it Ynys Môn?
Shabana Mahmood
I thank my hon. Friend. I hate to get people’s constituency names wrong, so I am glad to have got it right on this occasion. He made the point that it is Welsh tourism week, and Welsh Members of Parliament from various parties have been well represented in this debate. I recognise his long history of campaigning on this issue, and particularly his focus on the number of jobs and the amount of economic growth that such a change could create in his constituency and the Welsh economy as a whole. I fully expect him to continue lobbying Labour colleagues and a future Labour Treasury on the issue, as he has done alongside others throughout this Parliament, but I am afraid that I will disappoint him and other hon. Members throughout the House once again by not making a commitment that the next Labour Government will reduce VAT for the tourism sector in the way that they envisage.
Jim Shannon
If the shadow Minister is giving us a blanket no, can she give us an assurance that whatever happens after 7 May, if Labour is in power, it will consider it? If the Government applied to Europe, they could get a reduction. At least if we knew that it would happen, a move would be made. Let us see what happens.
Shabana Mahmood
I am grateful to the hon. Gentleman for that intervention. I was just about to develop a point about the evidence presented by hon. Members in this debate, and how we will react to it if we form the next Labour Government and Treasury.
I start by recognising that cutting VAT is a significant monetary challenge. The Opposition are clear that we will put no unfunded promises in our manifesto, the basis on which we will seek election from the public in the coming weeks, and we will not borrow any more money for day-to-day spending. We note the evidence presented by hon. Members in this debate from notable academics who have considered the issue in detail. It has been cited in support of the argument by the Cut Tourism VAT campaign. From opposition, I am not in a position to assess that evidence in the same way that the Treasury can, as it has access to data sets that we do not, but I note the Minister’s answers to hon. Members in written parliamentary answers and oral answers during departmental question time in the House. He has said, on the basis of analysis undertaken by the Treasury, that a VAT cut for the sector would not produce sufficient economic growth to outweigh the consequent revenue shortfall. It would be helpful if in summing up, the Minister put more of that evidence on the record, if the position is the same as before.
Mark Durkan (Foyle) (SDLP)
I apologise for coming late; I was involved in the debate in the main Chamber. The hon. Lady says that the Opposition are unable to examine the figures, but during this Parliament the Opposition have posited that an overall decrease in VAT would encourage consumer spending on all sorts of important consumer goods. Does she not accept that there is evidence to suggest that the measure would at least help trap the multiplier in a more targeted way in areas that depend on the tourism economy?
Shabana Mahmood
The hon. Gentleman will know that in the early part of this Parliament, we proposed an alternative package to the Government as an immediate measure to stimulate the economy. It envisaged a temporary VAT cut, which at the time could have made a difference across the whole economy and might have meant being in a different position today. I note, though, that the previous Labour Government, when lobbied on the issue, felt that targeting the cut in the way then envisaged would not necessarily have produced the effects anticipated by hon. Members.
That is why it would be helpful to hear more from the Minister about current Treasury thinking and analysis of the available evidence. An incoming Labour Treasury would certainly want to consider all that evidence and see the analysis at first hand. In particular, we would want to understand the relationship between different measures that could be taken, including a potential VAT tax cut compared with, for example—the Government have also cited this in defence of their position—the employment allowance, a £2,000 rebate on employer national insurance contributions introduced by the Government earlier in this Parliament. I would also want to be convinced that we would achieve as close to 100% pass-through of such a big change if we were to start considering seriously the case for making it.
However, we return to the fact that if we cut VAT in that way, the most recent Office for National Statistics data from 2012 suggest an annual cost to the Exchequer of £11 billion to £12 billion. Those sums would have to be found elsewhere, and we as an incoming Labour Government would not be in a position to make that choice. So I cannot commit to a VAT cut of the nature called for by the campaign, although I can of course commit, if I become a Treasury Minister after the election in May, to assessing the analysis and all available evidence. I will also work with colleagues in the Department for Business, Innovation and Skills and the Department for Culture, Media and Sport to examine what else can be done to assist the tourism sector and ensure that it plays its full part in encouraging sustained and balanced economic growth. I am sure that the Cut Tourism VAT campaign will continue to make its case in full heart in the life of the next Parliament; it is certainly made up of doughty parliamentary campaigners. I look forward to engaging with them in much the same way that I know the Minister has engaged with them thus far in this Parliament.
Tourism is a hugely important sector to the UK. It is our fourth largest service industry; it employs 9.6% of the UK work force, or 3.1 million people; it generates 9% of the UK’s entire GDP; and in 2013 it contributed £127 billion to the economy. So, it is in everybody’s interests to ensure that the sector grows, thrives and continues to provide the jobs necessary for UK plc.
As I highlighted in our debate on tourism last year, there are other policy levers that can be pulled, without the cost implications that a VAT cut on tourism would entail, which would still be of real benefit to the sector. One of the most effective of those levers could be around immigration policy, particularly given the complexity around fees, visa applications and the monitoring required to make sure that people do not overstay their visa. The Government have made particular changes with respect to some countries, such as China. However, it is the case that other countries are deemed to be a high risk for potential overstaying but whose genuine visitors are often locked out. I see that in my own constituency with visitors who want to come from the Indian subcontinent, but the immigration officials almost take a first view that those people are more likely to overstay than not. Often, that is not the case. People want to come to the UK to see the land that their forefathers left their countries of origin for, and they wish to come and celebrate family events such as weddings. They will spend money here, and their British citizen relatives will spend money showing them a good time and showing them what Britain is all about. We should assist that process and not hold it back.
Therefore, although I cannot agree for the cut that has been called for, I commend the work of the Cut Tourism VAT campaign and the work of its supporters in the House. We will continue to work closely with the tourism sector and we look forward to hearing more from the campaigners in the future.
Shabana Mahmood
I am grateful for that intervention. I do not have a fundamental objection, in principle, to that idea, but I am not in a position to commit to a formal review of some kind. Nevertheless, as I have said, if I was in the Treasury I would happily look at any additional evidence and at the Treasury’s analysis of the data at first hand, rather than hearing it from the Minister.
The Financial Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to serve under your chairmanship this afternoon, Ms Dorries, and to respond to this debate. This is not the first time that I have had the privilege to respond to such a debate. I start by congratulating the hon. Member for Ceredigion (Mr Williams) on securing this debate, and for giving hon. Members an opportunity to discuss this important issue. I also congratulate him on the manner in which he set out his case. His constituency is well-known for being one of the most beautiful in Wales, and indeed in the entire country. I make that point with a degree of concern because I appreciate that, having made it about his constituency, there is a very strong case to make it for many of the other constituencies that are represented here in Westminster Hall today.
Let me reassure the hon. Gentleman and indeed other hon. Members that the Government value the importance of the tourism sector, not only in the hon. Gentleman’s constituency but across the United Kingdom. I will say more about that later, but Ministers from both the Treasury and the Department for Culture, Media and Sport have been working closely with the industry to increase both in-bound and domestic tourism.
On the specific issue of VAT, I should briefly explain that VAT is, of course, governed by EU law and that reliefs from VAT are therefore strictly limited. However, EU VAT law allows member states to implement certain reduced rates of VAT, which are listed in annex 3 of the VAT directive, at the discretion of individual member states. Three of these reliefs are of particular interest today: first, accommodation provided in hotels and similar establishments, including the provision of holiday accommodation and the letting of places on camping or caravan sites; secondly, restaurant and catering services, excluding alcoholic drinks; and, thirdly, admission to leisure attractions, including shows, theatres, amusement parks, concerts, museums, and similar cultural events and facilities.
I know that the hon. Gentleman is aware that a number of other member states have chosen to implement a reduced rate of VAT on tourism and related activity. However, this Government are yet to find any conclusive 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 already provides for cultural attractions and public transport, nor the other tourist taxes that other member states choose to levy.
Mr Mike Hancock
I am very interested in the statement the Minister has just made that there is no conclusive evidence to support the argument that a cut in VAT would generate more activity. So, what is the evidence that he is using to say that there would be no improvement, and who produced it?
Mr Gauke
I will say a little about that. For example, the case has been made that in the Republic of Ireland there has been an increase in the number of tourists in recent years, since there was a reduction of VAT on the tourism sector there. However, we have seen a very similar increase in the number of tourists in the United Kingdom. So, we should not jump to the conclusion that there is necessarily a causal link.
David Simpson
Earlier, I raised the issue of the distortion of VAT payments between certain golf clubs—the disparity between the proprietary clubs and the member-run clubs. Surely that disparity should not exist. If it is a golf club, it is a golf club, and there should be a level playing field. Golf clubs create tourism, food and accommodation.
Mr Gauke
The hon. Gentleman leads me to a different debate on the VAT treatment of golf clubs, which I am sure he will understand is a matter of some complexity and indeed of some litigation, too. So, Ms Dorries, I hope you will forgive me, but I will not be too diverted by the particular point that he has put on the record.
In the UK, we apply a zero rate of VAT to food, newspapers and books, and passenger transport. The UK also refunds VAT incurred by many world-famous museums and galleries, making them free to visit for all. In addition to the sector-specific reliefs, the UK’s VAT registration threshold is the highest in the EU, meaning that much tourist accommodation and many attractions do not have to charge any VAT to their customers.
As I have said, Ministers from both the Treasury and DCMS have discussed the Cut Tourism VAT campaign, and recently I have both met and engaged in correspondence with campaigners. VAT raises more than £100 billion a year, which has been critical in enabling us to manage the UK economy through tough economic times, and the latest figures from the Office for National Statistics suggest that reducing the rate of VAT to 5% for catering services, such as the supply of meals, snacks and drinks sold by restaurants, pubs, cafés and canteens, would cost the Exchequer £10 billion per year. Similarly, a cut in VAT to 5% for accommodation would have an estimated cost of around £2 billion a year to the Exchequer. I do not have to remind hon. Members that those costs would have to be met either by increasing other taxes, which may well have an adverse effect on growth and jobs elsewhere in the economy, or by increasing borrowing. That would risk raising interest rates, which would undermine our hard-won recovery and would have an adverse impact on families and small businesses.
Albert Owen
The Minister made the comparison with the Republic of Ireland, saying that we have had a comparable increase in the number of people visiting this country. Does he have any comparable figures from the Republic of Ireland that show the boost to the tourism sector there, and if so, is he taking them into account when he talks about the extra revenue that has come into the Irish Exchequer?
Mr Gauke
The point that I am making is that the number of tourists in both countries has increased at largely the same rate, at a time when one of them has reduced VAT and the other has not. Of course, these matters can be somewhat complex and there are many factors to consider, and when it comes to tourism matters, and particularly matters affecting in-bound tourists, we should not forget the importance of the exchange rate. It is very significant and, of course, recently the exchange rate has gone in different directions.
Jim Shannon
If the Minister wants a comparison, he should compare the Republic of Ireland and Northern Ireland. Clearly, the number of visitors to the Republic of Ireland has grown enormously above the number visiting Northern Ireland. That is a clear example of the advantage of a reduced VAT rate. We could all take advantage of that if it happened across the whole of the United Kingdom, and particularly in Northern Ireland.
Mr Gauke
As I say, a comparison of the Republic of Ireland with the UK as a whole suggests that there is not a big difference. Indeed, I understand that there has been a pretty positive increase in the number of tourists to Northern Ireland specifically in recent years.
All hon. Members will be aware that this Government’s priority is to tackle our budget deficit decisively but fairly and to restore confidence in our economy. The Government have concluded that a VAT cut would not produce sufficient economic growth to outweigh the revenue shortfall. I have not seen any new conclusive evidence that has led me to revisit that conclusion. So at present the Government have no plans to introduce a VAT cut for this sector.
I reassure hon. Members that the Government recognise the importance of the tourism industry and we remain committed to a wide range of other measures to support the sector. For example, to date we have invested more than £129 million through VisitBritain and VisitEngland, to market great British holiday destinations at home and abroad. This has already leveraged significant private sector investment of more than £84 million. We have announced a £10 million tourism in the north fund in the next financial year. We have announced £2 million in the next financial year, to help promote our cities and regions overseas as part of the GREAT campaign, through VisitEngland.
The tourist industry has benefited from other policies introduced by this Government. I thank my hon. Friend the Member for Aberconwy (Guto Bebb) for making this point. For example, capping business rates and doubling business rates relief benefits the retail and hospitality sector by a considerable sum. Those sectors have benefited from the introduction of the employment allowance and will benefit from the abolition of employer's national insurance contributions for under-21s and for apprentices under 25.
John Pugh
I hope that this intervention will help. The Minister is saying clearly to the industry and to hon. Members that he has seen no conclusive evidence. If that is not to be a fob-off, should not he sketch out what conclusive evidence would look like to the Treasury? What is the Treasury actually looking for in evidence that would convince it that this case was valid? If he cannot say that, it will simply look like a stalling move.
Mr Gauke
A considerable amount of evidence has been produced. The essence of the case is that we would want to see evidence suggesting that the benefits to the economy outweigh the costs. The costs to the Exchequer are, as I have outlined, considerable. The Cut Tourism VAT campaign acknowledges in the numbers that it has produced—I can go into a little bit more detail on issues that we have with its methodology—that there would be an immediate shortfall. Its argument is that, over time, much if not all of that shortfall would be recovered. However, that immediate shortfall has to be dealt with. There is not the opportunity for us to say, “We can borrow extra billions of pounds to fund this, in the hope that that money will be recovered in future years.” If we undertook such a measure, we would need to replace that shortfall with additional taxes or reduced spending, and that in itself would have an impact upon the economy.
The actions we have taken in support of VisitBritain and VisitEngland and the tax reforms that I outlined, are delivering positive results for the UK tourist sector. Provisional figures for 2014 show that the UK welcomed 6% more visitors than in 2013: a total of 34.8 million. In total, UK tourist spend is also up by 3%, which is a total of some £21.73 billion. Provisional figures for tourism in Wales for 2014—the hon. Member for Ceredigion will be interested—show that more people are holidaying in Wales than ever before, with Wales now accounting for over 12% of holidays in Great Britain, leading to an increase on holiday spend in Wales. I am certain that, on top of the increase in numbers, all the successful events that the UK hosts year on year will only serve to make more people aware of the UK’s desirability as a tourist location.
Wherever we can, the Government will of course continue to invest in tourism and provide support for tourism across the UK. Although the hon. Gentleman, and other hon. Members who spoke in this debate, may be disappointed with my answer on VAT, I hope he and other hon. Members will be reassured that we support the sector; that, wherever we can, we will continue to support it; and that we are confident that both inbound and domestic tourism numbers will continue to rise.