Hospitality Sector: Fiscal Support

Tobias Ellwood Excerpts

Wednesday 31st January 2024 Westminster Hall

[Mr Tobias Ellwood (Bournemouth East) (Con)]

I am grateful to have caught your eye, Ms Bardell, and am pleased to see the Minister in his place. I am passionate about tourism, not just because I represent the best seaside resort in the country, but because my first job when my party was in opposition was as shadow tourism Minister. I am pleased that we are having this debate today.

Bournemouth is a vibrant, family-friendly seaside resort. We have three pillars to our economy: financial services, thanks to J.P. Morgan; creative industries, thanks to our fantastic Bournemouth universities; and tourism. Since the arrival of the railway in the 1870s, our part of the world has developed into one of the UK’s leading destinations for domestic and international tourists.

From the Bournemouth International Centre, with which parliamentarians will be familiar from conferences, to the Russell-Cotes museum, the Bournemouth symphony orchestra and AFC Bournemouth, who are doing so well in the premier league and are still in the FA cup, there are so many reasons to visit. Bournemouth is proud to host the National Coastal Tourism Academy, which I hope the Minister will visit. It also has miles of spacious, sandy beaches, from Studland to Hengistbury Head, which is ranked among the 25 best in the world and the fifth best in Europe. All those things have helped Bournemouth to become one of the most popular, family-friendly resorts in the country, and they are complemented by the vibrant night-time economy, with pubs, restaurants, bars and clubs attracting thousands in the evening.

There is no doubt that hospitality plays a vital part in the local economy. A quarter of all visitors to Dorset come to Bournemouth. Tourism is a critical component of Bournemouth’s prosperity: it represents 15% of the local economy, with a contribution of more than £500 million. It supports more than 15,000 jobs, both directly and through the supply chain.

As other hon. Members have mentioned, the impact of covid was colossal, and the hospitality sector’s economic output dropped by 90%. The furlough scheme was welcome; nevertheless, 10% of the hospitality industry closed, never to recover. What saved many businesses in the hospitality sector was reducing VAT to 5% for food, drink, accommodation and attractions. The Government made it clear that that was always going to be temporary, with a planned gradual increase to 12.5% and then back to 20%. The hospitality industry, particularly in Bournemouth, is starting to recover—no thanks to the local council, which wants to ditch the local air festival, our flagship tourism event, and to abandon the blue flag schemes and build on car parks.

Numbers are returning to pre-pandemic levels, but solid, permanent recovery will not be achieved if VAT stays at 20%. Today, licensed premises continue to shut at an alarming rate; indeed, more are closing than opening. VAT has gone up and down over the past few decades. In the years leading up to the 2008 financial crash, the UK maintained a VAT rate lower than in many other European states, at around 17.5%. After the crash, when VAT was slashed across Europe to encourage spending and stimulate economies, it was raised to 20% here.

My simple but critical call to action today is “Please listen to the hospitality sector, which is screaming out that VAT is too high, as more and more businesses are seriously impacted and unable to handle the increased costs of food, fuel and pay. Minister, please, please reconsider the decision to raise VAT back to 20%. Otherwise, you will face ever more business closures and you will subsequently raise less tax for the Exchequer.” The maths is very simple. Cutting VAT will mean more hospitality businesses staying open and thriving. That will lead to an increase in corporation tax income, because if their profits are higher, they will pay more tax.

I end by simply saying that Bournemouth illustrates the importance of hospitality: it gives a place a sense of identity and personality and helps bind a community together. Let’s support our hospitality sector. Let’s reduce VAT to 10%.

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[Hannah Bardell (in the Chair)]

Order. If Members at the back would like to make an intervention and have it on the record, I am sure we would all be very interested. If they do not, perhaps they could keep their comments quiet so that the rest of us can hear Mr Nicolson deliver his speech.

[Mr Ellwood]

On a point of order, Ms Bardell. This is Westminster Hall; this is not “Just a Minute”, but if it was “Just a Minute”, that contribution would probably have been a deviation.

[Hannah Bardell (in the Chair)]

I say kindly to the right hon. Gentleman that whether in Westminster Hall or the main Chamber, that is not a matter for the Chair; that is a matter of opinion. The right hon. Gentleman is entitled to his opinion, but it is not a matter for the Chair.

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[Nigel Huddleston]

I suspect I could spend the whole of this debate answering Members’ questions rather than going through my speech, much to the chagrin of my officials. Again, I understand the request. Many hon. Members pointed out that I was the one making these requests to the Treasury not so very long ago, for all the reasons they outlined, but we all recognise that we have to find the balance.

The point about dynamic modelling is really important. I will come on to VAT in a moment, but we must recognise that one of the biggest challenges of all requests for VAT relief is whether it will be passed on. There is not a 100% fantastic record of that happening in the hospitality and tourism sector or across the board, for understandable reasons. Cash flow was key during the pandemic, so not everybody was able to pass on the VAT reductions. When it comes to future requests for VAT reductions, we must be absolutely confident that they will be passed on, and that applies to multiple sectors.

[Mr Ellwood]

The Minister is being very generous in giving way. My right hon. Friend the Member for Witham (Priti Patel) mentioned the forthcoming Budget. Is there anything the Minister can tease us with? Can we look forward to anything in the Budget to support the hospitality industry?

[Nigel Huddleston]

I do love it when former Ministers try to tempt me in that way, knowing full well what the answer will be. What I can say is that we are listening.

I have gone off script for the past few minutes to try to respond to hon. Members, who have spoken eloquently and with real consideration of the challenges with their asks. There are no easy answers, given the challenging financial services. I and the other Treasury Ministers, and certainly the Chancellor and the Prime Minister, are always listening. We are always open to listening to evidence-based information. In that context, I cannot make any hints or promises about what may be in the upcoming Budget, but I can say that the view and opinion of the hospitality sector, especially as embodied by talented people such as Kate Nicholls at UKHospitality, and many others right across the UK, is valued. The sector used to be incredibly fragmented, and therefore did not have the voice it has now. Now, the sector comes in with credible, decent asks that need to be assessed with evidence. The voice of the hospitality sector has never been stronger in Government. I applaud all the lobbyists and groups for doing that.

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[Nigel Huddleston]

Various pieces of internal and external analysis have been released. We all know anecdotally from experiences in our constituencies that it literally did save businesses around the country. As I said, the Treasury keep tax policy under review all the time—that is a mantra, but it is true. The message I want to get across to colleagues today is that this will not be an easy choice. I understand the asks and we understand the impact, and there are various points of modelling, but it would not be an easy option. I repeat the caution that pass-through is vital when it comes to VAT relief. That did not happen wholly last time, but I understand why, as some of it was cash flow.

[Mr Ellwood]

Everybody understands the passion with which the Minister is pushing this. I do hope, as I teased last time, that he is having private conversations with the Treasury and making the mathematical case very clear. A business that closes does not pay any VAT at all. A business that thrives because VAT has been reduced somewhat can then pay more corporation tax. That is the mathematical formula that we would like to see, which I think has been presented by UKHospitality, and which justifies reducing VAT to 10% in the hospitality sector.

[Nigel Huddleston]

My right hon. Friend makes a logical point. I assure him that I am listening, but I am not making any promises.

I will refer to a couple of other areas that hon. Members mentioned. I appreciate the tone adopted by the hon. Member for Stirling. He recognised that there are things that the sector is requesting and looking for that Scotland, Wales and other countries are not able to deliver. That does not mean that any of us are not sympathetic; it is about the balance of the support package that we need to deliver. Like many today, he commented on both business rates and VAT.

My hon. Friend the Member for St Austell and Newquay has one of the most beautiful constituencies in the country, but also, as he said, one of those that is most reliant on this sector. He raised a variety of points, and he and I have had ongoing conversations about this subject, because he is such a champion of it. His point about the ongoing efforts to make sure that we get more inbound tourists outside London is pivotal. There are various opportunities and measures: VisitEngland, VisitBritain, VisitScotland, VisitWales, Discover Ireland and Discover Northern Ireland all do a fantastic job of helping to support and enable that tourism, plus there is a key role for our transport system.

My hon. Friend is right, however, that about 50% of all inbound tourism spend is within the M25. That is great, and we are not saying that that should be less; we are saying that we want it to be “London plus”. That is a key part of the tourism strategy, and I assure my hon. Friend that we are talking about this on an ongoing basis with DCMS and the Tourism Minister.

The hon. Member for York Central (Rachael Maskell) highlighted issues in her fantastic constituency, which I have had the pleasure of visiting on multiple occasions. She highlighted the importance of heritage in the tourism and hospitality ecosystem, and also mentioned flooding. She may or may not be aware that there are opportunities for businesses that are severely impacted by flooding under what is called a “material change in circumstances”. Working with the valuation office, there are opportunities to see, on a case-by-case basis, whether some relief is available. She might want to see whether some of the businesses impacted could consider that, as well as other support measures that we have provided for those impacted by flooding.

My hon. Friend the Member for Totnes (Anthony Mangnall) raised multiple points. He highlighted the upside of some of the trade deals that we are doing, so his constituency is now probably going to be flooded by Australian barmen and barwomen over the next few years. That is not necessarily a bad thing; I wonder whether they are better cocktail waiters and waitresses than he was.

My hon. Friend also raised the important point that, although the headline rates of VAT in some of our European friends’ countries may be lower, there is often a sting in the tail of quite considerable—startlingly high, in some cases—tourism tax, sometimes at a very local level. There is not a huge amount of evidence to suggest that that works either. There is always a balance, and although something may look like a beneficial tax rate system, one only has to scratch beneath the surface to find that there is something a bit more to it.