Gauke was speaking at a debate in Westminster Hall about the British Hospitality Association (BHA)-backed campaign to cut VAT to 5% on tourism businesses. Around 20 MPs spoke in favour of the proposal during the session.
Gauke said: “The latest ONS figures suggest that reducing the rate of VAT for all catering services provided by restaurants, pubs, cafes and canteens to 5% would cost the Exchequer between £9bn and £10bn per year.
“A cut in VAT to 5% for accommodation would have an estimated cost of around £2bn a year to the Exchequer.
“If this is going to be funded by additional borrowing, that is contrary to our long term plan to get the deficit down and to have our public finances in a credible position. That is a risk to the recovery.
“So the conclusion that Government has reached, which it announced in Parliament last year, is that a VAT cut would not produce sufficient economic growth to outweigh the economic shortfall.
“ I haven’t seen any evidence since then that has led me to revisit the conclusion, so at present the Government has no plans to introduce a VAT cut for the sector.”
He said that comparisons with other EU countries that have reduced certain VAT rates tend not to take into account the “significant VAT relief” that the UK provides for cultural attractions and public transport, or the existence of other tourism taxes in other EU countries.
He also said that in the UK, many tourism attractions don’t have to charge VAT to customers because the threshold for the tax is high.
The debate was co-secured by Margaret Ritchie MP, who asked Gauke to “robustly consider the case for a reduction in VAT on hotel accommodation and visitor attractions from 20% to 5%”.
“Would he also consider broadening that out in future to the wider hospitality sector, including to food served in pubs and restaurants? That would encourage many more foreign visitors and provide an incentive for ‘staycations’ in the domestic market. It would boost coastal resorts, rural retreats and cities and towns that have been hit hard by the economic downturn since 2008.”