Reduced VAT in tourism

By | Category: Travel rumblings
it's not just beaches that are tourist destinations

it’s not just beaches that are tourist destinations

MP’s, the travel industry and tourism destinations have been lobbying to get VAT reduced for tourism in particular, accommodation. So far they have had little response from the government

Until this week.

In a little noticed question, Geoffrey Cox MP asked the chancellor if “he will make an assessment of the potential merits of a reduction in VAT for small businesses in the tourism sector.”

In a brief but very telling reply, the Exchequer Secretary – David Gauke – replied that the government had indeed reviewed the case for a VAT reduction in the hospitality sector (he largely means accommodation, restaurants, pubs) and claimed that there is “insufficient evidence to justify a reduction in VAT.” Although he was only asked about small businesses he added that reducing VAT on all tourism related activities would have a potential cost in excess of £10 billion in the first year alone. How much it would cost if it applied to just small businesses, he didn’t bother to answer.

If it does indeed cost £10 billion we, and the tourism industry, can whistle in the wind for a reduction. Until the industry can show that any reduction would generate £10 billion plus one penny the government – indeed any government – is unlikely to consider this.

However, let me suggest another argument.

The government could consider applying a reduction in VAT for limited time periods to help regenerate particular parts of the UK. Much as it creates economic development areas with reduced or holidays in business rates then it could apply reduced VAT. Yes, it would distort the local economy but it might help to encourage economic growth, jobs and industry. But a VAT reduction would have to apply to all industries. As an alternative, overseas visitors to a particular area could, on production of an overseas passport and an air or ferry ticket showing an exit date get a the VAT element immediately reduced and pay the price less 20%. This is no more than happens at the moment except that you claim the 20% back at departure time or appoint an agent to get the money back for you. My thought would simplify the idea.

If the tourism industry is unlikely to get its reduced VAT, rather than harp on the idea for years to come, shouldn’t it just come up with alternative, less costly ideas?

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