The scandal of Taxing Exports, UK VAT and Accommodation

Export, export, export is the way to a prosperous future. An export led recovery is what we all need. The story goes something like this: if we can encourage more folk from abroad to part with their hard earned cash, spending it on our stuff, we can pay off our debts and maintain some of the living standards we have become quite attached to. At the same time, to double the effect, we need to curb our habits and spend a little less on the old imports. This all seems quite simple home economics. It even makes perfect sense to me.

Vat on accommodation
Vat on accommodation

In the accommodation business we have an ideal and somewhat rare chance to help the economy in terms of both exports and domestic consumption. Accommodation is not only a key element in the tourist experience, it is also a significant generator of jobs and GDP. So in our business we can help to grow exports, lower imports, create jobs and boost GDP: a quadruple benefit. Wow! You would think any government would see the advantage in promoting the accommodation business, and, as I will show, almost all governments have seen the benefits; it’s one of those “no-brainer” things.

As accommodation providers, we often look at improving our service to customers and potential guests. Essentially we aim to encourage them to stay with us for the first time or come back again next time. In this improvement exercise, it often pays to take a look at what the competition are offering: it gives a great snapshot of who’s doing what and, let’s be honest, there is nothing more satisfying than pinching an idea and making it even better. An important job of governments is to do a similar thing but on a far grander scale. They need to look at other countries and work out what the competitors are up to and which great ideas they can pinch and improve.

At this point I feel the need for a bit of research well above my pay grade. Luckily those clever people at the World Economic Forum produce a very useful report every other year. It’s called the world tourism competitive report and the last one was published in March 2011 – pretty up to date. It lists every country’s worldwide relative competitive tourist ranking using a wide variety of factors.

So, how does the UK government help us compete against our nearest competitors? The table below shows the top 10 European countries* listed in order of competitiveness, displaying their standard VAT rates versus their accommodation VAT rates. It’s an interesting measure of how much they look to promote their domestic accommodation businesses:

VAT_screenshot

I find these results quite literally shocking. Every single competitor we have enjoys a tax advantage against us. In relative terms, the UK government is effectively taxing exports (domestic accommodation) and allowing tax breaks for imports (European accommodation). You might be tempted to forgive them if this related to a couple of countries, but every single one bar the UK has a tax break. The world of international trade is heavily regulated, so it’s very rare to have a sector where a government has the power to legitimately favour its local business. This is one of them and it seems to me that every other government knows it. So why doesn’t the UK? I suggest they look at our competitors and pinch a good tax break or two. That would be something to really help the export-led recovery we all need.

* Source – The Travel and Tourism Competitiveness Report 2011 by World Economic Forum