Chancellor's failure to reduce VAT rate disappoints hospitality industry

by Janet Harmer , Wednesday 21st March 2012 16:38

Chancellor George Osborne has missed an opportunity in today's Budget to create more jobs by making the UK's hospitality and tourism industry competitive with other European countries, according to the British Hospitality Association (BHA).

Although he welcomed many measures in the Budget, Martin Couchman, deputy chief executive of the BHA, was disappointed that the Chancellor's statement gave no indication of the Government considering a reduction in the VAT rate.

"The Chancellor said that he wanted Britain to have a tax system that is more competitive for business than any other major economy in the world, but Britain has the third highest VAT rate on hotel accommodation in Europe," said Couchman.

"We are continuing to compete with countries like France and Germany, which charge 7% on hotel accommodation, Spain which charges 8% and Italy, which charges 10%. Of all the 27 EU member states only Denmark and Lithuania charge a higher rate."

Couchman said the BHA would continue to lobby for a reduction to 5% of VAT on hotel accommodation and attractions so that the industry could operate on an equal footing with European competitor countries and help create new jobs.

"Until we do, hospitality and tourism, which is Britain's fifth biggest industry, will be unable to realise its full potential, create more jobs and help fulfill the Chancellor's aim," he said.

Couchman recognised that some measures in the Budget were helpful, including the reduction of corporation tax and the simplification of tax returns for micro businesses such as guest houses and B&Bs.

"Altogether, if the Budget achieves the Chancellor's aim to get Britain moving, then this is to be welcomed, but tourism and hospitality could make a much bigger contribution to this objective if he had listened to our arguments on the reduction of VAT."

The BHA's views on the failure of the Chancellor to consider a VAT reduction were echoed by Stephen McCall, managing director for the UK and Ireland of InterContinental Hotels Group (IHG).

"This is a huge year for tourism but we're still waiting for the Government to get behind the job-creation potential of our industry - we could create half a million jobs by 2020 given the right conditions," he said. "With one of the highest rates of VAT on hotel accommodation in Europe, increasing air passenger duty and hard-to-obtain visitor visas, the UK shows an open for business sign but in practice the lights are off."

Stephen McCall also commented on the availability of finance: "Lack of available capital means that our owners struggle to develop new hotels and improve existing ones. We want people to visit the UK and do business here but we have to provide the best hotel accommodation we can to support that. We need the Chancellor to improve the REIT model so it can support the hotel industry and free up bank lending."

Property agent Collier International said the Budget had brought a mixed bag of news to the hospitality industry. It recognised that the reduction of corporate tax to 24p and the temporary 50% should bolster UK competitiveness in attracting and keeping businesses, but felt that the Chancellor had once again missed out on the chance to make a vital reduction in business rates

John Webber, head of rating at Colliers International, commented: "Following the Chancellor's announcement last year of a 5.6% increase, the fall in inflation means that businesses still face a significant rates burden. Had the Chancellor worked his numbers out on yesterday's RPI of 3.7%, businesses would have been looking at a 34% decrease in rates - a huge difference."

Meanwhile, although competitor property agent Christie + Co applauded the Chancellor's restatement of plans to offer a boost to small and medium-sized businesses through the new loan guarantee scheme, David Grant, director and head of UK business mortgages at Christie Finance, voiced a note of caution.

"On one hand, the Chancellor's desire to stimulate the wholesale money market by subsidising the rate at which those banks signed up to the deal can borrow, should improve liquidity and ease some of the capital allocation issues the banks have been facing up until now. On the other hand though, a one percentage point discount on interest rates payable will do nothing in real terms to assist small businesses - interest rates are already at levels below pretty much any period in living memory. The real issue is access to debt funding."

Budget proves disappointing for pubs >>

Slash VAT, boost business >>

IHG weighs in to support Caterer's Slash VAT campaign >>

By Janet Harmer


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