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UK is unlikely to follow French VAT reduction

16 May 2005

France's success in securing the go-ahead to slash its VAT rates on restaurant meals from 19.6% to just 5.5% is unlikely to stimulate similar moves in the UK, according to the British Hospitality Association (BHA).

The concession from Brussels is widely seen as a bribe in the run-up to France's referendum on the new European constitution.

The current tax regime across Europe, which was introduced 15 years ago as a temporary arrangement, only allows reduced rates to countries that already had them in place unless all member states agreed.

Martin Couchman, deputy chief executive at the BHA, suspected French rates would be slashed under an experimental scheme launched five years ago to allow reduced rates in labour-intensive sectors.

While there was nothing to stop Britain demanding the same reduction, Couchman believed Chancellor Gordon Brown would not want to lose the revenue.

He said the British Government had already rejected the economic argument for reducing VAT on accommodation, which would attract more tourists to the country. Cutting the price of restaurant meals would not draw in many more visitors and would largely benefit resident diners.

But he added that the BHA would raise the issue of competition. France already enjoys a 5.5% VAT on accommodation, compared with 17.5% in the UK.

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