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Tourism: VAT Reduction

Oral Answers to Questions — Treasury – in the House of Commons at 12:00 am on 18th April 2017.

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Photo of Alistair Carmichael Alistair Carmichael Liberal Democrat Spokesperson (Home Affairs) 12:00 am, 18th April 2017

What assessment he has made of the potential effect on the tourism industry of a reduction in the rate of VAT.

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

The Government have carefully considered the evidence for applying a 5% reduced rate of VAT on accommodation and visitor attractions, which has come up several times in the House, but we believe, on balance, that the costs of doing so outweigh the benefits. We keep all such things under review, but there are no plans for a reduction in the rate of VAT on tourism activity.

Photo of Alistair Carmichael Alistair Carmichael Liberal Democrat Spokesperson (Home Affairs)

That is a disappointing answer. The campaign for a reduced rate of VAT for tourism estimates that a 5% rate would produce a higher tax take and could create 121,000 jobs across the country. That would be of particular benefit to many economically fragile coastal and island communities. Will the Minister meet campaigners to discuss things in more detail?

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

I am familiar with the right hon. Gentleman’s figures, and Treasury officials have met campaigners over several years to look at them. We will always look at the evidence, but we disagree with the campaign’s economic assessment. Together with HMRC, the Treasury assesses that such a cut would cost around £10 billion a year—approximately £7 billion for restaurants and bars, and about £3 billion for leisure and accommodation.

Photo of Steve Double Steve Double Conservative, St Austell and Newquay

What further steps are being taken to support the tourism industry, particularly in places such as Cornwall, where tourism is so important to our local economy?

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

We look to support the tourism sector in a whole range of ways, and the sector is doing very well. We have seen great increases in the number of tourists, and my hon. Friend is a great advocate for his region. Tourism is one of the highest performing sectors in the economy. For example, the UK has one of the highest VAT registration thresholds in the EU— [Interruption.] The highest. That helps many small businesses that are providing goods and services to tourists without charging VAT at all.

Photo of Margaret Ritchie Margaret Ritchie Social Democratic and Labour Party, South Down

With particular reference to that, does the Minister recognise the additional disadvantage faced by the tourism industry in Northern Ireland, particularly in border constituencies such as mine, given that the VAT rate on tourism in the Republic of Ireland sits at 9% and ours sits at 20%?

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

We explored those issues when I gave evidence to the Select Committee on Northern Ireland Affairs, so I know what the hon. Lady is alluding to. One example is that the Government’s decision in last year’s autumn statement to focus on investment in infrastructure will result in an increase of more than £250 million to the Northern Ireland Executive’s capital budget, which gives them the means to boost productivity and promote regional growth in Northern Ireland.