Using the Treasury’s own economic models, the British Hospitality Association (BHA) found that cutting VAT by 15 percentage points on tourism-related sales would deliver a £2.6bn windfall to the Treasury over 10 years.
This is because cheaper prices would add £4bn a year to GDP, the campaign group said in an open letter to chancellor George Osborne, by boosting visits to the UK. Professor Adam Blake, who maintains the Treasury’s model, said a VAT cut on tourism was one of the most efficient means of boosting GDP he’d seen on the model.
And a five per cent rate would be in line with EU regulations that allow members to support their tourism sector with reduced rates – VAT on German and French hotels, theme parks and museums is seven per cent.
“While other countries use EU rules to support their tourism sector, the UK increased VAT last year to 20 per cent,” the letter, signed by executives at hospitality firms including Merlin, Hilton and Travelodge, read. “We now rank 135th out of 139 countries on price competitiveness.” The letter also referred to separate research from Deloitte, which found that cutting VAT to five per cent would generate 78,000 private sector jobs as well as giving a boost to GDP.