There are few sectors so important to the Scottish economy, and which have suffered as much during the pandemic, as tourism and hospitality.
It’s unique in being a major employer not only in cities, but also rural areas.
And as the sector looks to get back on track, tourism and hospitality is being further affected by staff shortages across the UK.
Given its vital position in the economy, this is an industry that deserves government support.
Helping hospitality bounce back
Whether for environmental or lifestyle reasons, indirect tax is often seen as a way of influencing behaviours.
This could be a punitive tax to discourage unhealthy habits, or targeted reliefs supporting specific sectors.
This latter point was clearly demonstrated last year by Chancellor Rishi Sunak with the temporary reduction in the VAT rate aimed at providing a stimulus to the hospitality sector.
Initially cut to 5 per cent for the period from Wednesday, 15 July, 2020, until Tuesday, 12 January, 2021, this measure had limited impact as the ongoing lockdown meant that businesses were forced to close and could not benefit from the lower rate.
Consequently, the reduced rate was subsequently extended until Thursday, 31 March, 2022, with the last six months at a higher reduced rate of 12.5 per cent.
Unfortunately, following the October Budget, there does not appear to be an appetite in government to extend this relief further.
This is disappointing for the sector as the VAT rates applied in the UK on the supply of restaurant and catering services, hotel accommodation, and admission to amusement parks and sporting events, is on average 25 to 50 per cent higher than rates across Europe.
Extending the reduced rate permanently could have been an easy indirect tax measure to support the UK’s beleaguered hospitality and tourism sectors.
Reduced rate for draught products
One initiative the Chancellor did announce in the Budget was the introduction of a new reduced rate for draught products sold in large containers.
This measure, intended to support the on-sales drinks trade, is aimed at beer and cider with an alcohol by volume (ABV) of less than 8.5 per cent, sold in containers of at least 40 litres.
While any measure aimed at supporting the on-trade and encouraging customers into pubs and restaurants is to be welcomed, this new draught product relief will favour the major drinks brands at the expense of smaller craft beer producers and micro-breweries.
Smaller producers tend to supply pubs in smaller containers, commonly 30-litre kegs, which will not qualify for the relief.
Draught product relief is the government’s preferred option to drive consumer habits based upon the place of retail.
Another option proposed following the call to evidence held last year, was a duty relief linked physically to the site of production.
With so many excellent visitor experiences at Scottish distilleries or breweries, such a ‘cellar door’ scheme for sales from the production site could have encouraged continued investment, driven footfall, increased local tourism, and provided a wider boost to local economies.
Unfortunately, this option was rejected by the government as it was felt that, by favouring producers operating from sites that are suitable for tourism, such a relief would be unfair.
This is a somewhat counter-intuitive reason for rejecting a hospitality relief. More importantly, it is a missed opportunity for a targeted relief for the hospitality sector.
Increased Air Passenger Duty in 2023
The trend towards domestic holidays and staycations has seen a boost to the tourism sector in 2021, though it is unclear whether the removal of the red list quarantine requirements for overseas travel will see that increase extend into 2022.
Though perhaps not the main driver behind the measure, the introduction of an increased Air Passenger Duty on ‘ultra-long-haul flights’, coupled with the new lower rate of air passenger duty on flights between UK airports from April 2023, may encourage more domestic holidays.
At Anderson Anderson & Brown, our Food, Drink and Hospitality team is committed to supporting the hospitality and tourism sector.
This includes helping businesses understand the impact of changing indirect tax measures on their business.
Read more about VAT duty on the Anderson Anderson & Brown (AAB) website.