One of Blackstock’s first major campaigns was ‘CutTourismVAT,’ which was pushing for VAT on accommodation and attractions to be slashed from 20 percent to five percent to put the UK more in line with its European neighbours.
The campaign was backed by MPs from all parties, trade bodies such as the British Hospitality Association, providers like Merlin Entertainment and Butlins, as well as thousands of smaller independent businesses.
In this week’s summer statement, Chancellor Rishi Sunak gave them what they long wanted – at least for six months.
VAT for the tourism and hospitality industries is to be chopped down to five percent until January 2021 as part of a package to kick-start economic activity after lockdown, with many in government now fearing households will need tempting out after spending months at home.
Back when Blackstock was first pushing for a VAT cut it was a very different time. There of course was no coronavirus or Brexit. We also had a Coalition government, UKIP were still a political force and austerity in some form was embraced by all the major parties.
But even then the case was clear: a Deloitte and Oxford Economics study in 2012 suggested a VAT cut of 15 percentage points would add £4 billion to the economy annually and create 120,000 jobs. Many of the areas that stood to benefit most were seaside towns that had suffered from the decline in fishing, growth of international tourism and successive governments focus on cities.
The case is even clearer now: tourism and hospitality have been some of the hardest hit industries by lockdown. With global travel likely to be limited for some time – partly due to government restrictions – state aid will be needed. This is not a case of bailing out badly run businesses in a recession.
Unlike a general tax reduction, which many consumers would use to save rather than spend, cutting VAT for accommodations and attractions encourages a specific activity. Much like the stamp duty exemption also announced in the summer statement, reduced VAT for tourism and hospitality may spur a mini-tourism boom, as Brits – and others – sick of being indoors and having had cancelled holidays want to escape to the great British outdoors.
People often forget that inbound tourism is a massive industry for Britain, generating £106 billion a year – comparable to the UK’s entire creative sector. Tourism supports 2.6 million jobs with more than a quarter of those held by someone under the age of 25, the demographic that would be damaged most by unemployment.
While there has been a lot of fantasy about free trade, post-imperial bluster and post-WW2 nostalgia associated with Global Britain, there is a genuine opportunity to reshape Britain’s perception in the world as it exits the EU, and tourism will be vital to that.
A thriving tourism industry would also boost Britain’s soft power, which it will need as it navigates a (possible post-)Trumpian America, an increasingly assertive China, and the evolving EU.
With an estimated price tag of just over £4 billion, and UK gilts selling at negative yields, permanently cutting VAT for tourism and holiday seems better value for money than offering meal deals for those who want a Katsu curry every Wednesday.