Reduced VAT for Scottish tourism and hospitality: letter to UK Government

From: Richard Lochhead, Minister for Small Business, Innovation, Tourism and Trade
To: Sir John Whittingdale, Minister of State for Media, Tourism and Creative Industries and Kevin Hollinrake: Parliamentary Under Secretary of State - Minister for Enterprise, Markets and Small Business

Dear Sir John and Kevin

Support for tourism and hospitality Sector - VAT

I am writing to you jointly, given the split in responsibilities across departments, on behalf of Scotland’s tourism and hospitality sector. 

The sector is vitally important to Scotland’s economy, as is the case across all parts of the United Kingdom, accounting for some 8% of jobs, 9% of businesses and contributing £3.4 billion in gross value added to our economy.  These operators serve the visitor economy and communities alike, offering a whole spectrum of choice to be enjoyed by all parts of society.  They are however businesses first and foremost, and to be successful they must remain viable. 

The sector has proved to be incredibly resilient in the wake of the pandemic, which hit it harder than most other sectors, and from which some are still recovering.  Trading conditions remain very challenging, and this is compounded by ongoing economic issues impacting negatively on operating costs and disposable income in household budgets, as well as challenges in the recruitment and retention of staff across all skills disciplines.  Recent surveys conducted by industry groups, including the Scottish Tourism Alliance, consistently report these pressures as being of greatest concern to businesses.

I am committed to do all that is possible to help the sector within the Scottish Government’s increasingly constrained resources, but I would like to raise with you the issue of VAT, which is of course reserved and upon which only the UK Government can take action on at this time.

During the pandemic the tourism and hospitality sector benefited from reduced levels of VAT, 5% then 12.5%, before returning to the standard 20% rate in April last year.  The industry continues to make a strong case for the return of a reduced rate of VAT for the sector.  Many countries, particularly across Europe but also elsewhere, maintain reduced rates of VAT for tourism and hospitality.  I believe the UK Government could support tourism and hospitality by looking again at a reduced rate of VAT for the sector here, and I ask you to support this and make the case for it to your Ministerial colleagues, particularly ahead of the autumn budget statement on 22 November. 

This could help boost business viability in a challenging trading climate.  The cost to the Exchequer of a VAT cut could be partly mitigated by stimulating demand in the sector.  My colleague, the Deputy First Minister and Cabinet Secretary for Finance, Shona Robison MSP, has included this ask for a reduced rate of VAT for tourism and hospitality in her recent pre-budget correspondence to the Chancellor.

I am sure you have received similar representations to myself from the respective trade bodies across tourism and hospitality and will understand their reasons for wishing to see further help from government in this way.  I hope that this is an area we can agree on in support of all our great businesses across the sector and I would be happy to discuss this, and other pertinent issues impacting these businesses, with you both in due course.

I am copying this letter to my colleague Shona Robison MSP, Deputy First Minister and Cabinet Secretary for Finance, to the Rt. Hon. Alister Jack MP, Secretary for State for Scotland and John Lamont MP, Parliamentary Under Secretary of State.