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Vat (Tourism Services)

Volume 406: debated on Thursday 12 June 2003

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6.

When he last met representatives of the tourism industry to discuss value added tax rates applicable to tourism services; and if he will make a statement. [118662]

There have been no recent discussions on that specific subject, but whenever we receive representations on tax matters we consider them carefully.

The Minister is right: the Government probably consider such representations carefully, but they do not do very much in this sector. May I remind the House that hotel accommodation in the United Kingdom is very expensive in comparison with other European countries? For example, France has a 5.5 per cent. VAT rate; Spain, 7 per cent.; and Ireland, 12.5 per cent. Would it not be a boost for the tourism industry, which is a very large employer in the UK, to look again at the VAT rate?

It might not offer the boost that the hon. Gentleman imagines, and let me explain why. We have the highest VAT registration threshold anywhere in the European Union, so half the hotels in this country do not fall within the system and therefore do not charge VAT. The type of measure that he proposes would cost the Exchequer about £650 million, most of which would benefit the major hotel chains and luxury city hotels. So the blunt measure that he proposes may not have the effect that he would wish.

My hon. Friend may not be aware that tourism is one sector that we are trying to develop in north Staffordshire, precisely because of the difficulties in our manufacturing industry and the urgent need for regeneration, so I welcome the Chancellor's Budget commitment to regionalism, but may I ask all my right hon. and hon. Friends on the Front Bench whether—as well as supporting our diversification efforts, including tourism—they would be receptive to a bid from north Staffordshire for Government agency jobs that will relocate from London and the prosperous south-east in future?

I welcome the efforts that my hon. Friend and those with whom he is involved in north Staffordshire are making to promote tourism. I know how beautiful the area is, and there must be a lot of potential to develop. On the specific point that he makes, the movement of civil service jobs out into the regions of England is being considered at the moment, and we will report on any plan in due course.

Will the Economic Secretary clarify the legal situation, bearing in mind our EU obligations? Do the Government, in this Parliament, have the right to abolish VAT on tourism services, for example, or to move the rate from the higher band to the lower band? What freedom of action is available to the Government?

VAT in this country is governed by European rules. We have long-standing formal agreements with other European states that we cannot introduce new zero rates or extend or introduce new ones, to which the hon. Gentleman refers. In relation to reduced rates and tourism, the Government considered the matter in 1998. No persuasive economic case existed for moving, as I have indicated, and there was not a strong fiscal case for doing so either. I must say to the hon. Gentleman that little has changed since then.