Eluned Parrott AM writes…Tourism tax reduction will boost economy and create jobs

Tourism is a major part of our economy, and one of the few industries which truly covers the whole of the UK. There isn’t a single Parliamentary seat which doesn’t benefit from tourism and it’s a sector with great potential for growth.

As Liberal Democrats I believe we should use the levers at our disposal to stimulate the economy and create opportunities for people to get on in life, no matter where they live. That is why, as a group of local parties from across the UK, we have brought this motion to conference. By reducing VAT to 5% for tourism businesses – bringing the UK into line with most of our European neighbours – we could do exactly that.

British tourism is at a competitive disadvantage, being perceived as an expensive holiday destination when compared to other EU countries. The impact of this on our tourism businesses is that it encourages UK customers to holiday abroad and deters visitors to the UK.

But price sensitivity in the tourism industry also acts in subtler ways. With UK hotels seen as more expensive than continental ones, visitors to Europe from the US and Far East spend less time here, ticking off the major sights in London and never stepping beyond the capitol. The higher upfront cost of staying here means that businesses in other parts of the UK don’t benefit, and those visitors that do come spend less in restaurants, shops and visitor attractions because they simply aren’t here very long.

We don’t have to look too far to see examples of where this kind of policy have been introduced and delivered real results.
In 1996, Ireland reduced the VAT on hotel rooms from 18% to 10% and on restaurant meals from 23% to 10%. This helped stimulate a period of strong growth in the Irish Tourism Industry after a long period of stagnation.

Today the rate of VAT on meals and hotels in Ireland stands at 9% compared to their standard rate of VAT of 23%
Studies have found that since the VAT cut in Ireland:

  • There has been renewed and sustained growth in overseas tourism numbers and earnings;
  • Employment in the target sectors has increased by approximately 30,000 with direct tourism employment up by more than 20,000;
  • Activity levels have increased across the industry;
  • Visitors believe they are getting improved value for money.

Just imagine the impact a policy like this could have on areas like the Cornish coast, Scottish Highlands, Mid Wales, Norfolk and the Lake District – all of which are rural areas that need an economic boost and suffer socially and financially when generations of young people are forced to leave their local area to find work.

By reducing the tax on tourism we will attract new visitors and encourage them to spend more, stimulating the economy and creating jobs, often in areas which wouldn’t otherwise have them. It is estimated that supporting the tourism sector in this way could generate 80,000 new jobs over three years and 120,000 over 10 years, giving much a much needed boost throughout the UK.
The upfront cost of this policy is £1.2bn a year, but more than half of that would be recouped within that first year from savings in benefits payments through new jobs created. The move would be cost-neutral in 3 years, and actually earn the Treasury £3.8bn over its first decade.

As a Liberal Democrat, I don’t believe the tax system should be used solely to provide funding for government. It can and should be used to stimulate the economy and change behaviour to encourage positive trends. In this instance we can do that and grow the nation’s future tax receipts at the same time.

This policy represents an investment; an investment that will create opportunity and help sustain communities today, and that will save money for the Government in the future. I urge you to support it.

This policy motion is being debated in Bournemouth on Sunday 20th September at 16:10. I hope those of you there and watching at home will join in on the debate and support this motion.

* Eluned Parrott is Welsh Lib Dem Shadow Minister for the Economy, Science and Transport and Assembly Member for South Wales Central.

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13 Comments

  • Eddie Sammon 10th Sep '15 - 1:18pm

    Amend it to 10% and I think it would be a good policy. I think 20% VAT is too much and unfair to businesses who cross the VAT threshold and the consumers who use them.

    In general, I want a more flatter VAT rate.

  • @Eddie Sammon – Sadly, because of EU rules, we can *only* have this VAT rate at 5% or 20% – We can only move items between existing bands, hence why the motion is calling for a decrease to 5%, as it is unfair and burdensome.

  • Eddie Sammon 10th Sep '15 - 1:29pm

    Hi Morgan, I see, I was wondering why I could only find VAT rates for 5 and 20%.

    I’m more sympathetic towards this idea than other commentators. VAT can unfairly distort the economy, especially the way different industries and different sized businesses are treated so differently.

    I know this isn’t very academic, but when it comes down to it, I just don’t like 20% VAT. 🙂

  • Ben Gardner 10th Sep '15 - 2:02pm

    The issue here is that the ‘low taxes will stimulate A,B,C’ argument is fairly endless. You can make the case for reduction in almost any industry. At the end of the day we need a certain level of taxation and we’ve all seen the problem that continually reducing the tax bases causes. We end up having to make serious cuts to public services and vital government spending to balance up the figures. I appreciate that you say this policies will eventually generate revenue but that’s just a prediction, you don’t know for sure.

    If there is an issue of our neighbours undercutting each other on ‘tourism tax’ (such as your example with Ireland) then maybe we need to work with the EU to harmonize rates and create a level playing field. That seems to me to be a better plan than providing a tax break at of austerity – especially when the bulk of that break will no doubt end up in the bank accounts of the larger companies in the tourism industry.

  • I first saw this earlier today, being pushed by a crypto (or not so crypto, actually) Tory, who is the local Chair of Chamber of Commerce. I think it is a batty idea, both from the point of view that it positively discriminates between sectors, and that it could be extraordinarily difficult to decide who should qualify and who should not. Why for instance should a mainly tourist supplying wholesaler pay 20%, whereas a hotel pay 5%. Generally, my view would be, reduce VAT, as an indirect tax, and rack up Income Tax, as a progressive direct tax, but the main thing this policy would do would be to increase arguments, not business!

  • I’m feeling discouraged relative to my European counterparts by having to pay tax too. Can I have a targeted tax break aimed just at me?

  • @Tim13 “and rack up Income Tax, as a progressive direct tax”

    We should be moving away from taxes on income towards taxes on wealth.

  • TCO Move towards Taxes on Wealth. I think we should implement well thought out wealth tax, if only because wealth itself has become so much more a division between the rich and the poor. But with income also being hugely disparate these days, we do need an income tax. I think the whole move away from income tax by our party has been hugely regressive, and needs reversal. What we do not need is high consumption taxes, such as 20% VAT.

  • Believe it or not, tourism is something that needs to be managed as much as it needs to be encouraged. Not everywhere in the country wants or needs more tourists. This absurd motion on cutting VAT is an arbitrary privilege for a sector of the economy which no more deserves that than any other sector and I shall be voting this motion down at conference! If you want to encourage tourism in certain places then you should instigate other measures that specifically target that part of the country.

    The motion put to conference on this matter suggests that tourist attractions and restaurants should be taxed at this reduced VAT rate. I challenge anyone to define what is a tourist attraction and what isn’t. I foresee a nightmare of court cases from pubs, restaurants, attractions of all sorts, insisting that rather than just being ordinary business they are “tourist businesses”. YUK

    No thanks. No arbitrary privileges.

  • “We should be moving away from taxes on income towards taxes on wealth.”
    [Off topic observation!]

    Well the Parable of the Fisherman and the Consultant for some reason comes to mind; now which of the two is the most wealthy? and how would you tax the fisherman?

    For those who wish to re-familiarise themselves with this story here is a retelling
    I only chose this site because it is another ‘Roland’ 🙂 but there are many other versions; just Google…

  • “In 1996, Ireland reduced the VAT on hotel rooms from 18% to 10% and on restaurant meals from 23% to 10%. ”

    I seem to remember there was more going on in Ireland at this time, like EU regional development monies etc.
    Whilst these reductions may have had an effect on internal tourism, I would be surprised if they had any significant effect on long-haul tourism. However, what would impact long-haul tourism are tourist incentive schemes – I’d recommend you take a look at the scheme Florida operated in the late 1980’s to encourage tourism.

    From memory: as a UK business we purchased vouchers at £250 each and gave these away to our customers (remember the free holiday if you buy our product types of promotion). The voucher gave two people free flights, 10 days accommodation and car hire (all paid for by the Florida tourist industry). I seem to remember there were also some follow up offers that those who took up the promotion could pass on to their friends.

    When I went to New England the month following 9/11, the reduced rates/room upgrades etc. were bonus’es but they didn’t play any part in my decision to go to New England at that particular time, which had been made prior to 9/11.

  • Richard Underhill 11th Sep '15 - 1:39pm

    Doubtful

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