Tax policies: A new approach is needed

New tax policies could be introduced post-Brexit which would benefit UK tourism and hospitality. The industry should be considering them now, say Bob Cotton and Miles Quest.

 

Whether the industry recognizes it or not, UK tourism and

hospitality is currently on a roll.

Take one main indicator. The declining value of the pound is having a highly beneficial impact on UK tourism which is currently

second only to Spain in Europe for tourism growth. Revenue from inbound tourism jumped by five per cent in May and by 14 per cent in the year to date.

True, more UK residents people are travelling overseas but at a much lower rate – only two per cent more than the same period last year – and up only one per cent on last year. UK staycations are holding their own.

In the hotel sector, investment throughout the country, not just London, is extraordinarily strong. In spite of this increase in capacity, occupancy in the capital remains high while occupancy in the provinces, though much lower, is healthy for well-run establishments.

At the same time, the restaurant industry remains vibrant. Notable failures there are, but these are invariably due to poor management. Good quality outlets continue to prosper and new concepts are being successfully developed throughout the UK.

So the industry shouldn’t worry about Brexit? Well, yes, it should – on a number of fronts. And it should take advantage of some opportunities.

The supply of migrant workers, critical to the future success of the industry, is now thankfully recognized by government but

it’s certain that hospitality will not be able to recruit as many overseas workers as it thinks it needs. So how will it recruit and train more UK-based youngsters and – just as
– how can it raise productivity levels so that fewer workers are needed in the first place? That’s the industry’s most pressing challenge.

There seems very little government appetite for a reduced level of VAT on accommodation services, still less on other items like restaurant meals. What incentive is there to reduce a tax in boom conditions, particularly in London? And will any reduction in VAT lead to lower prices? As the Chancellor needs all the revenue he can grasp, the campaign to unilaterally reduce VAT on accommodation services to EU levels seems doomed to failure.

But, in the longer term, freedom from the EU may enable the government to look more closely at taxing a wider range of goods and services at different rates and, more pertinently, in different nations or regions of the UK, rather than retaining the current national system of VAT. Pressure from Northern Ireland and Scotland (and possibly Wales) could realistically lead to variations in their overall tax regimes – and what happens there might well prove appropriate for different regions of England.

Another bugbear for hospitality businesses is the current calculation of business rates, especially for those located, like hotels, cafes and restaurants, in busy urban areas where the rates are typically highest. They represent yet another tax but raised on the basis of rateable value, rather than turnover. Business rates are particularly unfair when huge international companies can largely in their overall tax regimes – and what happens there might well prove appropriate for different regions of England.

Another bugbear for hospitality businesses is the current calculation of business rates, especially for those located, like hotels, cafes and restaurants, in busy urban areas where the rates are typically highest. They represent yet another tax but raised on the basis of rateable value, rather than turnover. Business rates are particularly unfair when huge international companies can largely escape them. We need a business rates system that encompasses the Gig economy.

Thought also needs to be given to the National Living Wage (NLW). Governments have traditionally set their face against regional levels of NLW (though that did not deter the old Wages Councils) but, at present, the rate for London is probably too low but possibly too high for parts of the outer regions. The one- size-fits-all NLW is skewing the labour market

– though employers must recognise that wags rates will rise once there is a reduction in the availability of migrant workers following Brexit.

And is there not an argument to use National Insurance contributions to promote skills and good employment practices, rather than being just a flat rate tax? It could be argued that employers who recruit, retain and train UK-based staff should be credited under NI while employers who do not should be made to pay.

Post-Brexit, the UK will have more flexibility in its approach to its tax affairs, with the possibility of variations in national taxes and the introduction of more appropriate regional taxes. Developments in Northern Ireland will be key. Any tax system needs to raise revenue but it should also be flexible and fair according to the needs of all nations and regions of the UK, as well as the country’s very different industry sectors. The present national system, dominated by the London economy, is not necessarily right for other parts of the UK.

The hospitality industry could, to advantage, begin to consider now how it could make the most of any new-found, post-Brexit tax freedoms