Following a debate in the UK's House of Commons this morning, David Gauke (Treasury Minister) said that the UK government will not consider a reduction in the UK VAT rate for the tourist industry. The government warned that there is no proven link between tax subsidies and tourist numbers. A reduction in the tourism VAT rate to 5% would cost the Exchequer up to £10bn per annum.
The debate, sponsored by a number of MPs from the South and Northern Ireland considered the UK matching the VAT subsidies provided in a number of other EU member states. The UK currently charges the full standard VAT rate of 20% on hotel accommodation, cinemas, visitor attractions, restaurants and cafes. Ireland cut tourism VAT to 9% in July 2011
The tourism industry is seriously disadvantaged compared to its European competitors. Ireland levies only 9% VAT, and has seen over 9,000 new jobs created since it dropped its rate. France and Germany only charges 7% on hotel stays. Last year, Greece reduced VAT on tourism to 13%
following a protracted negotiation with the European Commission, European Central Bank and International Monetary Fund.