Opinion: Scott Wright: Tax cut would give Scottish hospitality industry much-needed shot in the arm

VAT in his native France was subsequently reduced to 5.5% from 19.6% in 2009 in a move that Monsieur Borel said not only safeguarded 90,000 jobs in the hospitality sector, but paved the way for 75,000 more to be created. That was because the lower tax allowed restaurateurs to reduce prices, which in turn helped them attract more custom. The increase in revenue that followed allowed the industry to hire more staff, as well as invest in training and to upgrade their premises.

Other EU countries, including Ireland, Belgium, Sweden, Finland, and Germany, took up the option, with Monsieur Borel noting that surveys by his VAT Club group found that initial falls in VAT receipts in those countries were then eclipsed by the positive impact on the sector.

When I spoke to Monsieur Borel, he was at the forefront of a campaign, backed by major names such as JD Wetherspoon, Pizza Hut, Punch Taverns, Prezzo, Subway and Heineken, to press for similar action in the UK.

READ MORE: Opinion: Scott Wright: Scottish tourism facing precarious journey out of lockdown

While that was unsuccessful – VAT in the UK remains one of the highest in Europe at 20% – there is a strong case for his call to be taken into consideration now, as the hospitality and tourism sector attempts to overcome the difficulties created by the coronavirus.

The industry could certainly do with a boost after months of enforced closure to halt the spread of the deadly virus, which has already triggered thousands of redundancies.

Macdonald Hotels, Apex Hotels and the Crieff Hydro group are among companies which have begun consulting staff over what look to be deep cuts, and there is an expectation that further job losses will follow as the support provided by the UK Government furlough scheme begins to wind down from next month.

The tourism industry is due to take its first steps out of lockdown tomorrow , when self-catering holiday accommodation is permitted to reopen.

Providing there are no setbacks in the drive to combat the virus, pubs can then open beer gardens from July 6.

That is expected to be followed with a full opening of the hospitality and tourism industry on July 15, when venues will be permitted to welcome guests again indoors while maintaining social distancing protocols.

Such milestones are hugely welcome for an industry that has been starved of cash for months, and which has been at the back of the queue as the country has emerged slowly from lockdown.

However, the impact on the industry has already been devastating, and a partial reopening will only go so far to undo the damage, given that businesses will be operating at reduced capacities for the foreseeable future.

In such circumstances, a reduction in VAT must surely be considered as part of any strategy to revive the fortunes of an industry that is one of the country’s most significant employers.

READ MORE: Scottish hotel industry rocked as major firms move to slash jobs

Indeed, it could be argued that the move was already overdue before the crisis struck.

Amid the controversy which met proposals to allow local councils to introduce a transient visitor levy or tourist tax last year, leading figures from the tourism industry expressed concern that it would only add to Scotland’s reputation as an expensive place to visit. This was on account not just of VAT set at 20%, but the high level of Air Passenger Duty (APD) in the UK compared with other European countries.

“The message which keeps getting lost in the whole debate is the level of taxation which we already impose on our customers who visit us in Scotland,” said Russell Imrie, managing director of Queensferry Hotels, at the time. “We charge out customers 20% VAT within our prices, and there is no other country within Europe which charges more than 10%.”

Mr Imrie also said then that imposing a tourist tax would be damaging because of the fragile economic conditions, partly created by Brexit uncertainty. That fragility has since been magnified in the wake of coronavirus, making the case for a VAT cut now for a struggling industry even more compelling.

And there is growing support for such a move. The Higgins Report on Scotland’s economic recovery from the crisis, published last week, was met with a mixed response, with criticism emerging in some quarters over its lack of immediate stimulus measures and concrete initiatives to boost jobs.

But it has won support for its call for the Scottish Government to press its UK counterpart to consider a “targeted and temporary reduction in VAT to support the sector’s recovery”, as well as its suggestion that Scottish ministers cut business rates for tourism establishments.

Stuart Patrick, chief executive of Glasgow Chamber of Commerce, gave his backing for Higgins on VAT in The Herald this week, while the Scottish Tourism Alliance has long championed a reduction in the tax to 5%.

Malcolm Roughead, chief executive of VisitScotland, agrees, and talking recently to The Herald said current levels of VAT and APD should be examined in the context of the economic recovery from coronavirus.

Mr Roughead noted that there is precedence of VAT being reduced in the UK in times of emergency, highlighting the decision of former Chancellor of the Exchequer Alistair Darling to reduce the rate to 15% in November 2008 at the height of the global financial crisis. “It can stimulate growth,” Mr Roughead said. “The UK has one of the highest VAT rates in Europe, so we already are at a disadvantage in that respect. It would certainly level the playing field and make us more competitive.”

Mr Darling is now calling for current Chancellor Rishi Sunak to repeat his move of 2008, stating that a lower level of VAT would stimulate consumer spending and help the economy recover from the lockdown. There is also an argument that reducing the tax would give business owners sufficient encouragement to expand by investing in new equipment.

Mr Sunak is due to announce a package of economic stimulus measures this month. For the sake of tourism and hospitality, it is to be hoped common sense will prevail. And if Mr Sunkak is in any doubt, he need only look up what Monsieur Borel had to say.