The 20% VAT rate on Tourism is one of the most debated topics in the UK hospitality sector. Currently, the UK is one of only three countries in the European Union who do not utilise discounted VAT rates. Should this be considered by the Government in order to reduce the large trade deficit currently standing at £13.3billion a year?
According to the Office for National Statistics (ONS), the UK’s trade deficit has risen to £13.3billion, the highest since 2008, a figure stated to be “truly horrible” according to a BBC analysis. The trade deficit needs to be tackled, and one viable solution is to reduce VAT on tourism. The tourism UK vat rate is double the EU average, meaning that the UK is missing out on untapped revenue from overseas tourists, especially where accommodation and tourist attractions apply.
Furthermore, according to the “Cut Tourism VAT” campaign, run by the British Hospitality Association, tourists in the UK pay more than three times as much VAT than they do in Germany or France and double in VAT than in Spain or Italy. Consequently, the UK is becoming less appealing and cost effective as a holiday destination for many visitors. Yet, if the UK reduced its tourism VAT by just 5%, the problem could be solved.
Why Lower Rates?
The campaign on cutting tourism VAT has led to major discussions and research being conducted, each showing that reducing the rate VAT could:
- Create more jobs in the hospitality and tourism sector: Supporting evidence shows that the Republic of Ireland created 30,000 new jobs for the hospitality and tourism sector since cutting down tourism VAT from 13.5% to 9% in 2011. If the UK followed a similar path, the creation of 120,000 new jobs can be expected by 2020.
- Increase demand for accommodation and attractions: It is argued that tourism in the UK is not reaching its full potential due to its 20% VAT rate on tourism; if changes were to be made, lower prices would see tourism increase.
- Reduce the UK’s £13.3billion trade deficit: The UK has a large trade deficit of £13.3billion. A reduction in VAT by just 5% is projected to turn the countries deficit to a surplus over the next ten years.
- Boost GDP by £4billion a year and promote growth: The Cut Tourism VAT campaign has forecasted that the money generated through reducing VAT will be fed through to the economy, therefore increasing investments and competitiveness within the UK. As a result, GDP will increase significantly.
Dermot King, Chairman of the Cut Tourism VAT campaign stated, “At a time when our trade deficit with other EU countries is running at a record high level, there has never been a better time for this Government to take decisive action and reduce the VAT on tourist attractions and accommodation… Analysis from Tourism Respect and Nevin Associates shows that reducing tourism VAT from 20% to 5% would not only reduce the UK’s Balance of Trade deficit over 10 years – it would also increase the tax taken in by £4.2bn”.
If you would like to find out more or petition for a tourism VAT cut, please go to http://www.cuttourismvat.co.uk/