As part of the agreement, which includes £1bn extra funding for Northern Ireland, a ‘detailed’ report will be commissioned in to the impact of VAT and air passenger duty on tourism.
Restaurants and hotels in Northern Ireland are subject to the UK’s 20% tourism tax rate, which they say puts them at a competitive disadvantage against their neighbours in the Republic of Ireland, who pay 9%.
Air passenger duty is £13 from Northern Ireland for short haul flights, compared to zero for the Republic of Ireland.
Research by the Northern Ireland Hotels Federation estimates that failing to reduce the rate of tourism tax could cost the Northern Irish economy £132m from 2015-2020.
The new governemnt study will recommend how best to ‘build upon the growing success’ of the hospitality and tourism sector.
“I am confident the findings of this consultation will show that Tourism VAT should be reduced to 5% across every part of the UK, creating 121,000 jobs, increasing UK export earnings from tourism and bringing in £4.6bn to the Treasury over 10 years,” says Dermot King, chairman of the Campaign to Cut Tourism VAT.
“The benefits would be felt most keenly in coastal and rural areas in need of regeneration.”
The British Hospitality Association (BHA) added that it was ‘looking forward’ to working with the Treasury on the report.