The study, commissioned by the Cut Tourism VAT campaign and conducted by Nevin Associates, concluded that cutting tourism VAT from 20 per cent to 5 per cent would improve profit and employment in the tourism sector, boosting GDP by £4bn and creating 123,000 extra jobs over 10 years.
Over time, Britain would enjoy higher income tax and corporation tax yields from tourism, as well as reduced benefit payments, increased tax from suppliers to the tourism sector and a reduction in the £17m tourism payment deficit.
These gains would offset the initial £1.56bn initial loss in VAT receipts, with the Exchequer set to enjoy a net annual gain of £45m – with £8.5m generated by visitor accommodation and £36.5m generated by attractions.
“Under a "business as usual" VAT scenario, it is likely that the UK's share of the international tourism market will contract. By contrast, a reduction in the VAT rate will stimulate the growth in overseas tourism to Britain, and domestic tourism, helping to increase the taxation base,” stated the report.
“Because of the highly price sensitive nature of the sector, lower VAT rates that feed through to lower prices will stimulate higher turnover and employment. This in turn will increase income and corporation tax receipts and reduce benefit payments.
“Overall, when both the direct and indirect effects of a lower VAT rate are taken into account, our estimates indicate that there will be a net £45 million gain for the Exchequer.”
Cut tourism VAT
Britain is one of the only EU countries that has not taken advantage of the option to apply reduced rates to visitor accommodation and attractions, and campaigners argue that high VAT is restricting tourism growth in the UK.
The Treasury has so far refused to consider a VAT cut, despite its own advisor, Profesor Andrew Blake, concluding that a reduced VAT on tourism services represents “one of the most efficient, if not the most efficient, means of generating GDP gains at low cost to the exchequer that I have seen with the CGE model”.
However, the campaign to cut tourism VAT has gathered pace over recent months, with the Sun launching its 'Give Us A Break' campaign and over 60 MPs expressing support for a sector-specific VAT reduction for attractions and accommodation.