Re-visiting the debate: Cutting VAT in hospitality.

opinion

In early May I wrote a post about reducing VAT in hospitality to 5%, & why it won’t happen. The lowering VAT movement has been trying to gather traction by announcing a “Tax Parity Day” on Wednesday September 25th, where they will reduce the prices of restaurant bills by 7.5%. Yes, they’re doing it mid week, one presumes to minimise the impact on their bottom lines, hardly the courage of convictions is it chaps?

In one recent PR email, a supporter claimed that Jacque Borel, a former resistance fighter cum restauranteur, had:

A similar move in France, for which M. Borel campaigned for 27 years, saw VAT drop from 19.6% to 5.5% creating 225,000 jobs in the French hospitality sector.

So here are a few things to bear in mind when discussing the French cut in VAT (TVA):

  • The estimated cost to the public purse by the French Ministry of Finance? €3 million.
  • French has a far stringent stance with the Work Time Directive, workers are only allowed to work 35 hours per week, forcing many in the hospitality industry to take 2nd jobs, Is this where the extra jobs came from?
  • Due to the differing tax structure, you’ll probably be liable for income tax at £5134 in France, verses £9440 in the UK.

The movement who want to cut VAT in hospitality, claim they want parity with Europe. It just isn’t possible, the only parity that we can have already exists in the fact that VAT in EU isn’t allowed to drop below 15% except in special circumstances. If they want parity, let’s pay our workers the minimum wage that the French workers enjoy – £8.12 per hour, a full £2 per hour more than their British counterparts. Or do we go down the route that the Germans, Norwegians, Swedish, Danish, Italians and the Austrians have gone, and abolish the minimum wage all together?

Yet another manipulation of the truth by M. Borel & his movement, is that yes, in 2009 there was a cut to 5.5% in VAT (TVA) for restaurants, but when the recession really got hold of the French economy, what happened? The French Government increased it to 7% less than 3 years later, does this mean it was unsustainable? Possibly, as in 2012 France had a zero growth rate in GDP (see table below) according to the WorldBank.

GDP France v UK

 
2010
2011
2012
France1.7%2.0%0
UK1.8%1.0%0.3%

While M. Borel supporters claim that he doesn’t expect to see a cut in VAT until at least 2015, that would too late anyway. Not weeks after my original post, the British Hospitality Association (BHA) announced that it would create 30,000 new jobs by 2015 and go on to create 300,000 new jobs by 2020. None of which, appears to hinge on the flimsy idea that a growth sector should be paying less tax.

Earlier this week, the subject was debated in the House of Lords. Lord Aberdare claimed that UK hospitality businesses were disadvantaged by the 20% VAT rate, but yet again this was dismissed by Baroness Northover, stating:

The Treasury could not see a causal link between VAT rates and tourism levels, so I am afraid that the Treasury is thus far not persuaded.

Gidleigh

And she has a point. When you book your holidays, you don’t think to investigate what the VAT rate is in any one particular country. You are looking to satisfy a set of criteria you’ve set down. If dining in fine country house hotels in the British countryside is one of those, then you aren’t going to go to France, instead of visiting Le Manoir Aux Quat Saison or Gidleigh Park, are you? No, of course not. And this is the crux of it.

M. Borel & the ‘Cut VAT campaign’ are trying to compare chalk & cheese, it just doesn’t work. But what is even more laughable is M. Borel’s lobbying powers, let’s not forget it took him in France 27 years to get TVA reduced, and the current online petition is staring down the barrel of a grand total of 53 signatories.

As much as one or two individuals have tried to persuade me that the VAT cut would be a great idea, it just doesn’t stack up. The BHA say there are going to be 300,000 new jobs created over the next 7 years (more than M.Borel’s movement) at the current rate of VAT. Even French restauranteurs in 2009 said

Many restaurant owners have stated that it is just as likely to be retained by them in order to improve the profit margin of their business.

QED. I rest my case, as it was everything I said in the earlier post.



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