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Government handed tourism VAT cut study showing potential £4b economic boost

Government handed tourism VAT cut study showing potential £4b economic boost

A VAT cut for the UK’s tourism industry could deliver a £4b boost to GDP and a £3.9b tax windfall for the Treasury, according to a new study set to be handed to government today. 


Commissioned by the Cut Tourism VAT Campaign, The Nevin Report outlined how a cut from 20% to 5% for visitor accommodation and attractions would massively contribute to the UK’s tourism economy. 


In addition to the £4b lift to GDP each year, a VAT cut is expected to create 120,000 jobs around the UK.


Nick Varney, chief executive of Merlin Entertainment, said: “Doing a few fancy posters saying ‘Heritage is Great’ and putting them up at Shanghai Airport is not going to turn around 30 years of constant decline. If all UK holidays became 15% cheaper, economics tells you what’s going to happen.”


Political backing for the Cut Tourism Vat campaign has grown massively, with more than 70 MPs indicating their support alongside the thousands of tourism businesses that have got behind the drive.


The UK is currently one of the most expensive destinations to holiday in the world, ranked 138th out of 140 for price competitiveness by the Travel and Tourism Index, and one of just four countries in Europe not to have a reduced VAT rate for the tourism sector.


This is despite tourism being one of the UK’s largest businesses, employing over 3.1 million people and generating £127b of GDP in 2013.


The report, produced by Michael Nevin Associates, noted the success of similar cuts made in France, Germany and Ireland in the last five years, and said that a cut in the UK would encourage investment, jobs and visitor numbers for the UK’s tourism economy.   


It also supports a Deloitte study conducted in 2011, and analysis by Professor Adam Blake using the Treasury’s own model in 2012, which said that “cutting Tourism VAT represents one of the most, if not the most efficient, means of generating GDP gains at a low cost to the Exchequer.”


A cut is also expected help the wider economy, with the report stating that for each £1 spent in the tourism industry, 70p extra is spent in other sectors.


The report said that cutting VAT would also help stem the UK’s tourism balance of payment deficit – the amount spent by UK residents on international holidays compared to tourists coming in – which currently stands at £14b. For every one person that comes into the UK, two go out.


CUT TOURISM VAT CAMPAIGN SUPPORTER


Patrick Dempsey, managing director of Whitbread Hotels and Restaurants, said: “We fully support the initiative to cut tourism tax. A cut would deliver a huge financial boost for tourism around the UK and 120,000 new jobs with 8,000 already being created by Premier Inn by 2018.”


Ufi Ibrahim, chief executive of the British Hospitality Association said: “As the driving force behind our recovery, it’s vital we help smaller firms grow. Cutting VAT to 5% not only allows the sector to be competitive with Europe, where the majority of countries charge less VAT, but it shows hard grafting businesses the government is behind them. No one denies the cut would dent tax revenues initially, but this is a chance for politicians to prove they are really in it for the long by making an investment in an industry which is the UK’s biggest employer of young people.”


Graham Wason, chairman of the Cut Tourism VAT Campaign, said: “This new research is the economic proof the Treasury has asked for to prove what every other country in Europe knows – that cutting VAT on holidays is profitable for governments. Many of our coastal towns are ignored but cutting VAT would help them thrive. More than 60 cross-party MPs have signed our parliamentary motion and more than 1,000 companies and groups are backing the campaign. David Cameron and George Osborne should remember that next election will be won or lost in the regions and in coastal constituencies who would benefit from the huge boost cutting tourism VAT would add to our economy.”


Dermot King, managing director of Bourne Leisure, which owns Butlins, said: “As the pound continues to strengthen against the Euro driven by a combination of Mark Carney indicating higher UK interest rates and the European Central Bank considering a programme of Quantitative Easing (ie printing more Euros), the gap in price competitiveness between the UK and her European partners widens. Outside of the London bubble, UK tourism continues to try to compete with not just one but increasingly two arms tied behind it’s back.”


Margaret Ritchie, MP for South Down (SDLP) said: “A cut in the rate of [Tourism] VAT would create demand, which would spur job creation and go some way towards reducing youth unemployment.”

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