Is there a case to reduce VAT on hospitality and tourism permanently?

There's no doubt that all business sectors were hit hard, really hard, during the pandemic. That said (and perhaps I am biased), hospitality and UK holiday parks were amongst the most brutally hit of all.  We were forced to close by law, were amongst the last sectors to reopen and even then, endured numerous restrictions.  It was tough and many business owners are not out of the woods yet.

 So, to paraphrase an old Monty Python line, "What did the UK Government do for us?" Well, we could have a lengthy debate here about the various measures, but given that this article is about VAT, let's stick with that topic. Upon reopening, the UK Government provided welcome support by reducing VAT to 5% until 30th September when it climbs to 12.5%, before returning to the standard rate of 20% as of 31st March 2022.  By all measures, this action was decisive, very welcomed and supported a bounce back, to some extent.

 But let's be clear, the 20% UK VAT rate for accommodation (VAT on restaurant food is equally high) levied on members of the public who simply want a getaway has been excessive for years. Take a look at the chart below and you will see that unlike most of Europe, there are no VAT concessions for accommodation in the UK. The average rate of VAT for accommodation is 11% across the countries shown, almost double the UK standard rate.

Source: European Commission (2017a), Database of Key Taxes on the EUTourism Sector, August 2017

So what? Well, other forces are driving our "input costs" higher and faster than I have previously seen.  These influence holiday prices, just as VAT will. Wage costs are growing as hospitality desperately tries to find team members, National Insurance is increasing, fuel costs (the energy price cap does not apply), food, drink, consumables etc are all escalating.

The supply chain that services our industry is suffering immensely, notably our static caravan manufacturers. The cost of timber, steel, fabrics, white goods, glass, uPVC etc is climbing so fast, one manufacturer is suggesting they will have to reprice caravans four times per year.

Add that all up and apply an already uncompetitive VAT rate, and UK tourism is more expensive than it should or needs to be.

The case for a permanent reduction in hospitality VAT has never been more apparent or timely. The positive impact it has had on pricing and investment while safeguarding and creating jobs during the pandemic is undeniable.

Maintaining UK VAT on hospitality lower than the standard rate will keep us competitive. It will increase the frequency of customer visits, increase employment, reduce the number of people relying on benefits and support our fantastic sector. It will lead to further investment, improving overall quality, not to mention the positive impact of increased visitor numbers on the economies local to our parks.

Why damage a sector that has been a bastion of British culture for over 100 years in this recovery period?  We are a sector that employs over 200,000 people in its supply chain and supports a great UK manufacturing success story, providing millions of families with the chance to get some well-deserved time with their loved ones.

Now is the moment for the government to send a message to the UK population that they care about everyone's leisure time. Rather than requiring people to pay 20% VAT using wages upon which we have already paid income tax, why not set a lower tax rate for hospitality, so we can all spend more quality time together? They seem to be able to do it outside of the UK.