One of the curiosities of the high rate of UK Tourism VAT is that a previous British Government accepted the principle for a reduced tourism rate to boost the economy.
That was in 1994 when the then British Government approved an application by the Isle of Man Government to reduce VAT on visitor accommodation to 5%. It has remained at that level ever since.
The Manx Government had argued that in an increasingly competitive international market, particularly for rival short term breaks in Europe and the Channel Islands, its important tourism industry was struggling to compete.
Visitor numbers show that prior to the reduction, in the period between 1985 and 1993, there was a sharp decline in tourism.
Visitor numbers recovered strongly in 1994 and, helped by the cut in VAT, rose to over 340,000 in 1997. Since then, the numbers have fluctuated between 275,000 and 340,000 annually. Without reduced VAT, tourism in the Isle of Man might have all but disappeared.
Naturally other factors have affected visitor numbers, such as improved access to the island, investment in heritage projects and UK and international events, but the VAT cut has been important.
“The reduced VAT rate as approved by Treasury, Isle of Man Government, in order to stimulate the tourism sector in the early 90’s. At that time our visitor’s numbers were declining partly due to the recession but also due to cheap foreign holiday opportunities as well as the loss of tourist accommodation businesses at this time. This reduction has proved to be of benefit to the Island and we are showing growth in visitor numbers but just as importantly the standard and quality of our accommodation stock has been the greatest benefactor.” – Angela Byrne MIH, MInstLM, Cert Ed FAHE, Head of Tourism, Department of Economic Development, Isle of Man Government (February 2014)
The Isle of Man case is particularly interesting. As the 5% rate of VAT on hotels as remained unchanged since 1994, it demonstrates that successive UK Governments appear to have accepted the argument that reduced tourism VAT improves international competitiveness and can help economic activity.
If 5% VAT helps the Isle of Man to compete with short-term tourism destinations, think how reduced tourism VAT would help the whole of Britain to compete with France and Germany and the rest of Europe, which already enjoy reduced tourism VAT.