There is strong evidence for a reduction to 5% VAT for hospitality in a move which could create as many as 310,000 jobs, raise additional tax revenue and reduce VAT fraud
The case for a reduction in the UK
Cost of reducing VAT to 5%:
£1.5b to £3.4b (higher end of range applies if alcoholic beverages were included)
Number of jobs that can be created:
150,000 to 310,000 (higher end of range applies if alcoholic beverages were included)
Fiscal cost per new job in hotel and restaurant sector:
£6,900 to £16,300
Source: VAT Club (Jacques Borel)
Other benefits for the UK
● Increased business creation. The visitor economy has one of the highest levels of business creation in the UK, accounting for 11.5% of all new businesses registered
● Less incentive for businesses such as small cafés and B&Bs to stay below the VAT threshold of £71,000
● Less under-reporting of cash receipts. The "shadow-economy" is currently estimated at about 12% of the total UK economy by the University of Linz in Austria
● A reduction in the UK's tourism deficit which stood at £20.5b by 2008
The French Experience
In July 2009, France decreased VAT from 19.6% to 5.5% for restaurants and cafés. Hotels were already taxed at the lower rate. Alcohol remained at the higher rate of 19.6%. A report by French senator Michel Houël in October 2010 and research by Jacques Borel showed that in the 15 months since that move:
€2.6b (£2.3b) Cost to the state for the reduction
€3.1b (£2.7b) Amount repaid by the restaurant industry
2.1% Reduction in café/restaurant prices
Sign our petition to reduce VAT to 5% for hospitality businesses.
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