A cut in value added tax for the tourism and leisure industry would boost visitor numbers and jobs, UK tourism leaders have told the Chancellor.

Led by the chief executive of the British Hospitality Association, Ufi Ibrahim, 10 senior industry figures have obtained access to the economic models used by the Treasury, and concluded a 5% VAT rate on tourism would be tax neutral for the Government and would boost the economy by £4 billion a year in increased visitor numbers.

A separate study by Deloitte has shown a reduction in VAT on hotels and tourist attractions, such as theme parks and museums, would create an extra 80,000 jobs in the industry.

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EU rules allow member states to adjust the levels of VAT imposed on the tourism market, but the UK has failed to take advantage. The tourism sector in this country pays the same 20% VAT rate as everyone else. The French and German governments cut their tourism industries' rate to 7%.

In a letter to George Osborne, the industry leaders – including the European President of Hilton hotels, Simon Vincent, and Grant Hearn, head of Travelodge – say: "We are the only major tourist destination in Europe not to exploit the EU's rules and reduce the rate of VAT charged on tourism.

"In 2005 the Prime Minister said the Government wanted to see the UK move up the league table for international visitors to fifth place. Since then the UK has slipped to seventh place – behind Turkey."

They argue that tourism is the UK's fifth-largest business sector and can make a significant difference to speeding up the slow economic recovery, unlike longer-term sectors such as biosciences.