Tourism (VAT)

Jim Shannon Excerpts

Tuesday 11th February 2014 Westminster Hall

[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.

--- Later in debate ---

[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.