Osborne should swallow his pride and cut VAT

Saturday 4 August 2012

In The Herald today, Lady Claire Macdonald, Skye hotelier and doyenne of British food writers, calls for an immediate halving of VAT to 10% in the hospitality industry.

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"This is the most urgent issue surrounding hospitality today in the Highlands, where tourism is the lifeblood of the economy," she says.

A call to reduce VAT on hospitality to 5% is currently the subject of an e-petition to the UK Government. In the EU, 21 countries have a lower VAT rate for the hotel sector (and 13 for the entire hospitality sector) than the UK. It is claimed that in France, where the rate was cut from nearly 20% to 5%, around 22,000 jobs were created in the first year alone.

For more than a year, The Herald has been calling on George Osborne to kickstart the economy by implementing "Plan B". A VAT cut would be the best place to start because, unlike other tax changes or infrastructure investment, the effects feed through to the economy instantly, leaving more cash in people's pockets and boosting consumer confidence. Is it because Labour's Alistair Darling used it so effectively and Ed Balls is calling for the same move that the Coalition is giving the idea the cold shoulder?Yet such a move would make sense, especially in the hospitality sector, which is labour intensive, provided the savings were passed on in lower prices or increased employment. With the world's attention riveted on London 2012 and poor summer weather in many areas of Scotland, the country's tourism industry desperately needs a boost. A tax that demands an extra £1 from tourists for every £5 they pay out in hotels and restaurants must act as a barrier to growing a business and could even push some out of business. Tourism minister John Penrose says he remains to be convinced that a cut would benefit the industry. Yet research by Deloittes concluded that a VAT cut to 5% in the industry would create 78,000 jobs and drive investment. This is an urgent issue in Scotland where tourism is the biggest private employer. At present the industry is trying to fight with one hand tied behind its back. A VAT cut might even pay for itself in increased employment and higher sales.

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Osborne should swallow his pride and cut VAT

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