Comment: Should Holyrood cut tourism VAT?

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Is it time to dilute the impact of drink-drive limit on licensed trade by cutting tourism VAT, ask Eileen Blackburn and Barry Laurie

Given the fact that the recently introduced drink-drive limit has led to a slump in business, perhaps it is time for the Scottish Government to help the licensed trade by adding its support to the Cut Tourism VAT campaign.

The Bank of Scotland’s latest quarterly business monitor reveals that some 33 per cent of more than 400 licensed businesses suffered a fall in turnover since the introduction of the new legislation.

And the Scottish Licensed Trade Association, British Institute of Innkeeping and Scottish Beer and Pubs Association have each reported significant impacts – up to 60 per cent down on sales – on pubs, which is also likely to affect smaller rural hotels which act as the local pub.

Industry insiders report a tangible reduction in sales of alcoholic drink at lunchtime and early evening in the local/casual bar trade, as well as a reduction in the evening as customers restrict alcohol consumption out of growing concerns about the new drink-drive limit the following morning.

The Cut Tourism VAT campaign wants to reduce tax from 20 per cent to five per cent. It recently ranked UK political parties according to their support for the argument that a cut in VAT would boost the UK economy by £4 billion and create 120,000 jobs – and the SNP was ranked second, due to its commitment to examining a reduction, but falling short of pledging to reduce the rate.

The campaign is seeking to bring the rate of tourism VAT in line with competitor destinations in the European Union. There are a limited number of areas where EU rules allow governments to implement a reduced rate of VAT. In tourism, the UK is one of only four countries not to take advantage of a reduced rate.

As such, Scotland’s licensed trade operators are continuing to lose ground to European rivals in attracting holidaymakers. Reducing tourism VAT would help lower prices, but also allow businesses to increase investment in other areas.

In addition to lobbying government, there are various measures that licensed trade operators can take to mitigate the impact of the drink-drive limit on their businesses. A starting point would be to review their business plans and budgets.

• Eileen Blackburn is head of business recovery and Barry Laurie is a tax partner at French Duncan Chartered Accountants.