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Tourism VAT cut could give South West a £160m boost

By Western Morning News  |  Posted: December 11, 2012

  • George Osborne

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Tourism bosses have urged Chancellor George Osborne to give serious consideration to a VAT cut which, according to tests conducted using the Government's own financial forecasting system, could net the Westcountry an extra £160 million a year.

Reducing the existing rate of VAT imposed on hotels and visitor attractions to 15% would generate an extra £4 billion a year for the UK economy, without changing the total amount of tax paid by the tourism sector, according to research using the Treasury's own models.

Business leaders in Devon and Cornwall, which could benefit by about 4% of the national figure, say Mr Osborne should "give it a go".

Malcolm Bell, head of VisitCornwall, said competing with countries such as France, which had benefited from a VAT drop, was difficult and described the proposal to fall in line as a "no-brainer".

"I am no economist but British tourism is one of the most highly-taxed tourist economies, which makes it difficult to compete overseas," he said.

"It looks like a no-brainer and the Treasury should give it serious consideration – it might seem counter-intuitive but sometimes these things do work."

The research was conducted by a campaign group representing some of Britain's most powerful leisure companies, including Alton Towers owner Merlin Entertainments and Travelodge.

The group was given rare access to economic models used by the Treasury to see how a reduction in VAT for the tourism industry would affect the wider economy.

In an open letter to the Chancellor tourism chiefs led by Ufi Ibrahim, chief executive of the British Hospitality Association, argue the modelling showed a 15% VAT cut on tourism would be tax neutral for the Government and would result in an extra £4 billion a year through increased visitor numbers.

A separate study by Deloitte has shown a reduction in VAT on hotels and tourist attractions, such as theme parks and museums, would create an extra 80,000 jobs in the industry.

Under European Union rules, member states are allowed to adjust the amount of VAT imposed on the tourism market but the UK is one of the few countries not to take advantage of the move.

The tourism sector in this country is subject to a 20% VAT rate while rivals in France and Germany pay just 7%.

Tim Jones, chairman of the Devon and Cornwall Business Council, said tax cuts were difficult to justify during times of austerity, but added that in this case a "short-term investment would be extremely good for long-term growth".

"It is a special case which the Government should be looking at and exploring the possibilities," he added.

"A successful tourist industry has an enormous multiplying effect on the local economy through local supply chains and the food and drink sector – this can be as much as fourfold which makes for a compelling argument."

Nick Varney, chief executive of Merlin Entertainments, said the evidence was "overwhelming".

He added: "We've just spent all of this money on the Olympics and yet we're saying to tourists, 'You can come here but it is going to be extremely expensive because of VAT'."

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