Tourism (VAT)

Philip Hollobone Excerpts

Tuesday 11th February 2014 Westminster Hall

[Several hon. Members]

rose—

[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.

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[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—

[Mr Philip Hollobone (in the Chair)]

Order.

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[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 Philip Hollobone (in the Chair)]

Order.