BTA steps up call for vat reduction
By Gaby Huddart
Foreigners and UK residents alike say they would spend more of their holidays in the UK if the VAT they had to pay on hotel and restaurant bills was reduced, according to a new study.
The in-depth research, carried out by Touche Ross Management Consultants, found 33% of UK residents would be much more likely to take a home holiday if there was a 10% reduction in the cost.
Among overseas respondents, 70% said they would be more likely to holiday in the UK if prices fell by 10%.
The study also looked at whether hoteliers, restaurants and leisure operators would pass on cuts in VAT to their customers. It found 80% said they would pass on at least half of any future VAT reduction to their customers. Half said they would pass on 75% or more of any VAT savings.
The report says that if VAT were reduced to 8% on tourism accommodation alone, 38,000 new jobs would be created within four years and £419m in extra Treasury revenue would be generated from the resultant increase in the number of tourists.
Touche Ross's report marks the end of more than a year's work in which 553 hotels, restaurants and leisure operators were questioned along with 1,500 UK residents and several hundred people overseas. The report was commissioned by the British Tourist Authority's working party on VAT and concludes that the UK is losing out on tourism because the VAT charged here is higher than virtually any other European country (see table).
"Britain's high VAT rates may cause some overseas visitors to choose other destinations in preference to the UK. Equally, it might induce UK residents to go abroad rather than stay at home. The statistical evidence indicates that this is precisely what is happening at considerable cost to the UK economy," says the report.
"By contrast, in Ireland, where VAT rates were cut in the mid-1980s, the reverse is true. Our conclusion is that on equity, fiscal and economic grounds, the case for reducing the VAT rate applying to visitor accommodation in the UK is highly compelling," it adds.
The British Hospitality Association (BHA), which first approached the BTA about the matter in 1993, plans to use the report to step up its own campaign for reduced VAT.
"Over the past seven or eight years, we've said in every pre-Budget submission that the tourism industry is at a disadvantage because customers here pay 17.5% VAT, whereas our competitors have reduced rates," BHA chief executive Robin Lees told Caterer.
"This report by an independent body contains a lot of new research and shows how price-sensitive our industry is. We are sending it to the Treasury and Department of National Heritage."
Mr Lees has also sent the report to more than 300 BHA members and industry representatives. In his covering letter, he has asked them to lobby ministers and MPs, and confirm they would pass on VAT savings to customers.
