Treasury stifles hopes of cut in VAT for tourism industry
Ministers have poured cold water on the prospect of a VAT cut for tourism to bring Britain on parity with rivals in Europe.
Ministers are under pressure to follow the lead of France, Germany and Ireland by slashing VAT on food and accommodation.
But in a written ministerial question, the Treasury has said a cut would have a "negative effect" on the economy and the Government therefore has "no plans to introduce a VAT cut for this sector".
The tourism sector in Britain is subject to a 20% VAT rate while rivals in Europe pay just 7% in some countries. The British Hospitality Association last year claimed reducing the duty to 15% could net the Westcountry an extra £160 million a year.
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Dan Jarvis, Labour's Shadow Tourism Minister, asked what assessment Chancellor George Osborne has made of the value of lowering VAT for businesses involved in UK tourism.
In response, junior Treasury Minister David Gauke said: "The Treasury has worked closely with industry representatives to consider the impact of a VAT cut for the tourism sector on growth and jobs.
"The conclusion the Government has reached is that a VAT cut would not produce sufficient economic growth to outweigh the revenue shortfall. A VAT cut for this sector would therefore need to be funded either by additional borrowing or by raising other taxes, both of which are likely to have a negative effect on the economy.
"The Government therefore has no plans to introduce a VAT cut for this sector."
Tourism is worth more than £2 billion annually to Devon and Cornwall.
The campaign group had argued reducing the existing rate of VAT imposed on hotels and visitor attractions to 15% would generate an extra £4 billion a year for the UK economy.
Critics say British tourism is one of the most highly-taxed tourist economies, and have more broadly slammed the Government's tourism strategy. Somerset MP John Penrose had been Tourism Minister, but was dumped last September after finding his department had been made smaller as part of the Cabinet reshuffle.
In 2010, David Cameron said the country should "up our game" so that 50% of what the British spend on holidays is spent domestically. It stood at 36% at the time.
But ministers decided not to press ahead with re-arranging the bank holiday running order – the most eye-catching policy in its much-vaunted tourism strategy.
Calls to move the clocks forward an extra hour – providing more daylight to boost tourism – have also been rejected.