CLA calls for permanent VAT cut

Making VAT cut permanent would add £4.5bn to economy, CLA research shows
Pineapple Estate.jpg
Glamping at the Pineapple Estate, Bridport

Analysis conducted by the Country Land and Business Association (CLA) has found that making the VAT cut from 20% to 5% permanent for rural tourism enterprises with a turnover of up to £500,000 would add £4.5bn to the economy, over a 10-year period.

Covid-19 is estimated to have led to a drop of over £50bn in spending on domestic tourism in 2020 [1] with rural tourism operators taking the major brunt. This drop is set to continue as bookings for February half-term and Easter are cancelled due to the pandemic. Even once the sector opens again, it will not return to normal as social distancing forces lower capacity rates.

Keeping the VAT cut permanent would help level the playing field with popular European destinations, including Greece (13% VAT), France (10% VAT) and Spain (10% VAT). It would also enable tourism businesses in the UK to lower their prices to the public - leading to an increase in demand and more jobs being created.

Without support, hundreds of thousands of jobs could be lost. A recent survey by the Cut Tourism VAT campaign found that a fifth of respondents said removing the temporary VAT reduction after 31 March would force them to cut 20% of their workforce with a further 44% stating they would have to reduce employee numbers by between 5% and 20%. This equates to 310,000 jobs, which is in addition to those who have already been made redundant in the hospitality sector.

Pushes to lower VAT have previously been dismissed; reducing VAT for tourism enterprises with a turnover of up to £500,000 would lead to a two-year tax deficit of £280m for HMT. However, this represents a drop in the ocean compared to the £400bn spent on Covid-19 support measures. And over a decade, the move would boost revenue by £4.5bn. To save the rural tourism sector and ensure its long-term sustainability and competitiveness, it is a common-sense policy to adopt as part of the Budget on 3 March.

The VAT reduction provides a solution that will benefit everyone involved, from rural tourism businesses to those in their supply chain

CLA President Mark Bridgeman

Mark Bridgeman, President of the CLA which represents around 5,000 rural tourism businesses across England and Wales, said:

“The rural tourism sector, as a whole, has been heavily impacted by the pandemic. With the tightening of restrictions over the Christmas period and the national lockdown looking to continue through the February half-term, many holidays have been cancelled, resulting in a loss of business for many.

“We must do what we can to support small businesses during this time, and the VAT reduction provides a solution that will benefit everyone involved, from rural tourism businesses to those in their supply chain, and ultimately the Treasury, who stand to make £4.5bn from our proposal.”

“The CLA sees this as a fundamental move in ensuring vital cashflow and maintaining business competitiveness in the longer term.”

Changing affect

CLA member Andrew Dyke, who runs a camping business on Pineapple Estate in Bridport, West Dorset, says bookings for the Easter period are slow.

“Although we are seeing bookings come through for the summer, bookings for March and April are slow; I don’t think either our potential guests, or ourselves, truly believe we will be open before May,” said Mr Dyke.

“Last summer, we saw a huge uptake in bookings, and we anticipate that will be the case again this year. As a small business, the campsite normally operates below the VAT registration threshold and, while we are preparing to register from May 1 due to last year’s growth, if VAT is reduced to 5% on a permanent basis the difference to us is huge. It will encourage us to grow and employ more people.”

Notes to editors

Visit Britain 2021 forecast: Visit Britain