Opinion Piece: If you want to save Britain’s towns, give hospitality and tourism a tax break
In his final opinion piece of 2020, Oakman Inns CEO Dermot King discusses tax breaks for tourism and hospitality industries to help save UK towns.
The economy has tanked. Officially, UK GDP grew by 0.4 per cent in October, but 1.69 million people are unemployed with a further 2.4 million people on furlough by the end of October. Youth unemployment is expected to exceed one million by the end of the year. If you have savings, the interest you earn will be about a tenth of inflation, and so the real value of your savings is reducing.
In these circumstances, what industry should the Government support? I suggest that such an industry would have to pass four tests. First, that it is a proven exporter and bring economic activity into the country. Second, it would have to create jobs quickly. Third, it would be helpful if those jobs were particularly in the youth sector and lastly, the growth generated should not suck growth from any other sector of the economy. Perhaps a tall order but the answer lies behind a different problem.
In June 2019, the Government produced a response to what appears to be an annual report into the causes of the degeneration of seaside towns over the last 40 years. Despite contributing hugely to our cultural wellbeing, it is an inconvenient fact that if you live in a coastal town you are more likely to be poorly educated, unemployed, unemployable, lacking in ambition, claiming benefits and living in multi-occupation housing.
In fact, it turns out, that one of the biggest “exports” from coastal towns are its young ambitious people who want to get on by moving out elsewhere. Towns like Blackpool, Middlesbrough, Rhyl, Southsea, or Clacton have all seen better days.
Towns that were once thriving communities will face huge challenges as high street stores like Debenhams are closed, driven out by the relentless race to the bottom which online retail competition will inevitably take them leaving a glut of unwanted property. And therein lies the problem. Tax.
Where once seaside and market towns thrived on the back of the industries that supported them – tourism, hospitality, fishing and farming – the constant drip feed of tax increases over many years have left them vulnerable to competition from businesses models that can move their tax jurisdiction around the world.
We have a real fight on our hands and that fight is for the ambition of the youth that come from seaside and market towns. They need local industries that give them something to be ambitious about, however, if you want to make these towns great again, find out what made them great in the first place. Hospitality and tourism, depending on which measure you use, is the fourth or fifth highest export earner for the UK behind the likes of financial services and oil and pharmaceuticals.
Hospitality employs over 10 per cent of the UK workforce overall. Furthermore, typically 60 per cent or more of the workforce is under 25. Tourism is internationally competitive. The boffins at the Department for Culture Media and Sport might think that the UK has a unique product to sell, but so does everyone else. If you want to see history, you can see it in Rome just as much as York, but the UK is expensive. The World Economic Forum bi-annual Travel and Tourism Competitive Index consistently places the UK in the bottom five out of 139 countries for price competitiveness. And so, we come back to the root problem: tax.
Our VAT rates on hospitality are between twice and three times more expensive than our competition. To compound these structural issues, we must now add the Covid crisis. Hospitality has basically been shut since March. At no point since the initial lockdown have hospitality businesses been able to trade without restrictions despite investing heavily in creating Covid-secure environments.
Rishi Sunak defends his position by pointing to the unprecedented support provided to the industry. Whilst the furlough scheme has unquestionably preserved jobs (for now), his support package consists of a rates holiday for 12 months, a temporary reduction in VAT on food until 31 March and his famous Eat Out To Help Out scheme. But even if we reopen in March, of the 12-month rates holiday we have been closed for seven months and of the eight months of reduced Vat, we have been closed for four months. That leaves us with 13 days of Eat Out To Help Out in August. This package did not compensate for the destruction of businesses in the summer, never mind Christmas.
Hospitality is too important, not just for seaside and market towns, but for the UK as a whole, to be treated so shabbily. At the very least it needs an extension of the rates holiday for a further year, a permanent reduction in the Vat rate on food services and accommodation to 5 per cent and the ability for hospitality businesses to use their corporation tax losses in this year to be set off against their other tax liabilities including Vat and Paye.
A competitive consumer tax is the root to confidence, investment and regeneration. The ambition of our youth depends on it.