Tourism VAT cut would be “revenue neutral” by third year

Coinslot HM Treasury
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While the industry would benefit immediately, the Treasury would only have to wait three years to start seeing a profit from cutting tourism VAT, according to the Cut Tourism VAT campaign that wants to see the 20 percent figure slashed to five percent.

A cut to the VAT charged on tourism related products would be revenue neutral by the third year and would result in a net profit for the Treasury thereafter, according to new independent research.

Commissioned by The Campaign to Cut Tourism VAT, the fresh figures put forward a strong economic case in favour of a 20 percent to five percent cut, showing that despite a first-year loss,by the third year a reduction would be revenue neutral and would result in a net profit for theTreasury thereafter.

“The gain for the Treasury would be £5.3 billion over ten years, produced by an industry free to grow to its full potential,” said a spokesperson for the campaign.“ The new data also shows that over the same period, expansion in the sector would provide an additional 130,000 jobs in the form of both direct and indirect employment. Furthermore, a reduction would improve the UK’s historically weak tourism trade balance by £24 billion over ten years.”

These figures bolster the Campaign’s strong and are supported by separate analysis from an adviser to HM Treasury, Professor Adam Blake. He assessed the impact of reducedTourismVAT using theTreasury’s own Computable General Equilibrium (CGE) model,and compared this to alternative measures aimed at boosting the economy, such as reductions in corporation tax, national insurance contributions and the general rate of VAT.

“Cutting tourism VAT is one of the most efficient, if not the most efficient, means of generating GDP gains at low cost to the Exchequer that we have seen with the CGE model,” Blake concluded.

Furthermore, an independent review of both the campaign’s and Blake’s data modelling was carried out by Dr Andrew Sentance CBE, who served for 5 years on the Bank of England Monetary Policy Committee between 2006 and 2011,and Jonathan Gillham, who worked as an economist in HM Treasury and HMRC for more than 7 years.

“The campaign’s analysis has been well-researched and has delivered insights to inform policy discussion. The depth of research and the modelling detail has been impressive,” they stated. “Both modelling approaches support the view that there would be substantial benefits to the UK economy from a cut in the VAT rate on tourism related activities.”

Indeed, for all the research that has gone into proving that a cut to tourism VAT will be beneficial for everyone – even the Treasury, it certainly seems a no brainer. And with major operators such as Bourne Leisure, Merlin Entertainment and Premier Inn pledging to reduce prices by the full amount of the VAT cut on the day that the measure is introduced, the impact on the industry would be instantaneous.

“Reducing the price of holidays, short breaks and days out at visitor attractions by up to 15p in the pound would be highly popular and advantageous to virtually all UK residents, as well as an incentive to overseas visitors,” the campaign’s report concluded.

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