Opinion: The taxing problem of encouraging tourism in the UK

Opinion: The taxing problem of encouraging tourism in the UK

Ufi Ibrahim, chief executive of the British Hospitality Association

In a speech given by David Cameron soon after he became prime minister, he said “tourism is fundamental to the rebuilding and rebalancing of our economy”.

This is true. But the government must recognise there are significant barriers to tourism growth.    

Take competitiveness. The UK’s high rate of VAT – 20% – on hotel accommodation and attractions is the most significant barrier to growth and job creation.

Yet other EU states acknowledge that tourism is an extremely price-sensitive sector, subject to intense international competition.

As a result, all but three other countries levy a reduced rate of VAT on accommodation (the exceptions being Denmark, Lithuania and Slovakia).

The VAT rate for accommodation is 7% in France and Germany, 8% in Spain and 10% in Italy. Twelve countries have also introduced a reduced rate for restaurant meals and 18 have reduced rates for entry to attractions. 

These rates make UK tourism uncompetitive compared with the rest of Europe. Indeed, according to the World Economic Forum’s latest Travel and Tourism Competitiveness Index, the UK ranks 135th out of 139 countries on price competitiveness. 

There are other policies that create barriers to growth. A survey published in 2010 by the European Tour Operators’ Association revealed that 58,000 tourists cancelled their trip to the UK in 2009 due to slow visa processing.

As the UK is outside the Schengen Agreement, visitors who want to visit the UK when travelling in Europe have to pay an extra charge – another barrier. 

We simply make it too difficult and expensive for residents from potentially huge markets such as China and India to visit Britain.

Air Passenger Duty is another tax that inhibits travel and thus visitor numbers because it is levied on outgoing and return trips for overseas visitors.

Tourism worldwide is a major growth industry, but I do not believe the government recognises that global tourism is becoming ever more competitive. More importantly, does it recognise the damage that its present policies inflict on UK tourism?  

Yet UK tourism has huge potential. In the past decade, more than 1,100 hotels have been built and more than £25bn invested in the hotel industry. There has also been significant investment in the attractions industry and in restaurants.

This investment will continue only if government policies establish a framework in which growth can be stimulated. Without such policies, the full potential of UK tourism will never be realised.

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