Join our VAT-cut campaign

By The PMA Team

- Last updated on GMT

Related tags: Hospitality sector, Investment, Tax

Charity: VAT reduction would re-set the dial on UK tourism competitiveness
Charity: VAT reduction would re-set the dial on UK tourism competitiveness
The Government has only to look at France to see why a tax reduction on food would help create jobs and lower prices for consumers, says The PMA Team.

Asking Government for a tax break for the pub and hospitality sector may sound like a waste of our collective breath.

But there are compelling reasons why the trade should mobilise behind the Morning Advertiser's campaign, launched last week, for a reduction of VAT to 5% on food.

True, the coalition government may have other calls on the public purse right now that rank higher on its list of priorities.

And Prime Minister David Cameron was busy pouring cold water on the notion of tax breaks at the weekend. But this is a campaign for the medium term, with the hospitality sector needing to set out the win-win logic of such a move ad nauseam.

It already has the support of leading companies like JD Wetherspoon, Greene King and Travelodge, as well as the British Beer & Pub Association. With the public sector in contraction, hospitality is one of the few sectors capable of creating jobs — given the right, and measured, economic stimulus. This is not theoretical either.

France provides a case study of how a VAT reduction to 5% works for everybody. Since the lower VAT rate was introduced in March 2009, a total of 21,700 jobs have been created — it is estimated the figure will rise to 70,000 by 2012.

Re-investment

The French VAT measure has cost the state €2.6bn (£2.2bn) but it's an investment with an outstanding return — the hospitality sector is paying an extra €3.1bn (£2.6bn) in taxes per annum, largely through having more people in work.

In France, around 50% of the VAT saving is actually passed on to customers in the form of lower prices — there was a 2.1% drop in café-restaurant prices in the first 15 months. The rest of the saving has been invested back into businesses in the form of capital investment, the creation of new jobs, and a higher minimum wage.

The latter move has meant, amazingly, that annual staff turnover has dropped from 80% to 40%.

"The profession has once again become attractive to young people," says Jacques Borel, the architect of the French scheme. There are now 13 countries in the EU that have a lower VAT rate for the hospitality sector — 21 if you include those that have a reduced rate for the hotel sector alone.

Competitiveness

It has got to the stage where a VAT reduction is needed to re-set the dial on UK tourism competitiveness. The number of global travellers has increased by 700 million per annum to 900 million per annum since the 1970s.

But the UK has been flat-lining at 30 million visitors a year — under half the number that France enjoys. The UK has a lot to offer in tourism terms for international travellers.

Next year, the Olympics means the UK will be an especially attractive place to visit — a trip to a few UK pubs will, no doubt, be high on many visitors' lists. Imagine the economic benefit of providing our visitors next year with better value.

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