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My Lords, I begin by recognising and thanking the hospitality businesses for their enormous contribution to jobs—it is nearly 3 million jobs—and to growth, communities and the economy. I think it is nearly a £100 billion contribution to the economy. They have seen rising costs, some to do with national insurance and many to do with rising food and labour costs. But the Government are providing targeted support to the sector, including lower business rates multipliers, a £4.3 billion business rates support scheme and the Great British Summer Savings scheme, but they are doing that while ensuring sustainable public finances. I must come back to that, because HMRC estimates that reducing VAT on accommodation and food and beverage services to 10% would cost around £11 billion a year. I think this figure is already known publicly.
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My Lords, I listened very carefully to—
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My Lords, the Minister has acknowledged that over the past two years hospitality has experienced higher cost, but it is nothing but higher cost, imposed in particular by this Government, from employment costs and business rates pressures to regulation, and now it faces the prospect of potentially sky-high holiday taxes. In February the Prime Minister, when Mayor of Greater Manchester, said he favoured halving VAT on hospitality to 10%,
“because of the social value that your businesses bring to places and towns that need that life injected into them”.
Will the Prime Minister now listen to himself and the 800 hospitality businesses and industry leaders who have written to him, and will he now cut VAT to support, in particular, our small business sector?
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I cannot comment about changes in taxation, particularly in the run-up to the Budget, but if I might just correct the noble Lord, the point I made in my first Answer was that there has been support given, particularly to pubs and music venues. Support has been given particularly to smaller businesses—750,000 properties—and in reductions in national insurance to 900,000 people who work for smaller businesses. The corporation tax here in the UK is the lowest in the G7 and it is reduced for small businesses, so I reject the thought that no help has been given.
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My Lords, back in November 2025 my party called for a 5% cut in VAT on hospitality because the situation was so dire, with at least a third of the industry operating at a loss. Will the Minister now look again at the VAT cut? Will he also follow through on those other issues where small businesses need help, such as a different regime for NICs for part-time workers? Will he look at their energy costs, because most of them cannot access the attractive energy packages as they are not available to the small firms? The change in business rates favours the corporate chains but actually disadvantages most of the small independents. They are the backbone and they are the employers, especially of our young people.
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I entirely echo the noble Baroness’s congratulations to the hospitality industry. I will be more than happy to answer the questions she has asked after the Budget, but I think most of them anticipate changes in tax, which it would be inappropriate for me to discuss at this point.
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My Lords, I apologise to my noble friend on the Front Bench, and to the House, for jumping the gun in my attempt to ask a question. I listened carefully to what the Minister said. I think he accepted that the industry is under a great deal of pressure, because he talked about some of the areas where the Government are attempting to help. Can I press him on the point that my noble friend raised? Given that the industry is under pressure, how on earth will allowing mayors around the country to impose a tax on people going on holiday help anybody with the cost of living?
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As the noble Lord may be aware, those sorts of rights exist for mayors and other local authorities in almost every other European country. In the UK they will need to consult locally before they introduce any such tax, but many mayors will believe that the extra revenues can raise the economy of their local area and provide better facilities so that the hospitality industry, along with everyone else, will prosper. As I said, this is part of a devolution agenda, but it is one where there will be consultation before any additional charge is introduced. It will be proportionate, of course, in the sense that it is a percentage of the cost, so it would cost more for an expensive hotel than for lower-cost accommodation.
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My Lords, picking up on that point, does the Minister agree that a tourist tax spent in the main on arts and culture would be logical, since that is what tourists come here for? If our cultural attractions are properly maintained and developed, that will in turn significantly help the hospitality industry.
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That is a really good question that mayors and local authorities around the country will have to think about—how they make their towns attractive to tourists and nice places to come and visit and therefore support the hospitality industry and the wider community.
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My Lords, does the Minister agree with me that everyone would like a tax cut? Any individual, company or sector will want tax cuts, but you have to be responsible. The Truss Government were not responsible and that set the bond markets off and caused a lot of the problems that we are experiencing now.
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I thank the noble Lord for that question. It brings me back to the fundamental question that we have to think about, which is that we can live only within our means. A VAT cut of 10 percentage points would cost £11 billion. That is about the same cost as the Royal Navy. We need to ask ourselves what the priorities will be. As we look to the Budget, I know that the Chancellor will be looking at absolutely everything, but I thought that benchmark might be helpful for your Lordships’ House.
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My Lords, the Prime Minister stated his support for the tourist tax, but the impact assessment of it has not really been made and some parts of the country will do better than others. Can the Minister say what assessment the Government have made, despite the fact that it is potentially a devolution area?
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The assessment is that this should be in the power of the local authority. It will be devolved. On any cost-benefit analysis that has been done, given that I was alerted to this Question only two hours ago, I do not have that with me. If I could write to the noble Baroness, I would be happy so to do.
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My Lords, I do not believe the Minister had the pleasure of participating in the Employment Rights Bill, and I will not relitigate the entire debate, but the legislation undertakes to substantially change the zero-hours regulations that affect many of the businesses that the noble Lord, Lord Hunt, mentioned. Does the Minister acknowledge that the consultation now and the decisions that will be made as a result of that consultation—how those changes are applied, and in particular the threshold at which they are applied—will materially affect these businesses and existentially affect some of them? Does he undertake to make sure that when those regulations are published, they take into consideration the health of this sector?
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I will try to answer more broadly about employment. The UK employment rate is in the top half of OECD economies. It is above the G7 average. Unemployment is in the bottom half of the OECD. Participation among 16 to 64 year-olds is higher than the average participation rate in every year but one of the last 50 years. The Government are increasing funding for employment support to more than £4 billion a year, including £2.5 billion investment in the youth guarantee and the growth and skills levy in the next three years, supporting 500,000 opportunities to earn and learn in the hospitality industry and all other industries. As I say, we are faced with many challenges ahead of us, but I believe that what the Government are doing in this area is correct.
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My Lords, the Minister raised the importance of copying Europe with the tourist tax, but many European countries—all of them, I think—have a VAT discount on tourist shopping, one of the things the last Government sadly did away with. This has a huge impact on the retail, hotel and hospitality sectors. The Minister is not going to give me a sneak preview of the Budget, but can the Government at least look imaginatively at trying to find a way to attract tourists back into this country to spend their money? Then socialist mayors around the country can charge them even more for their hotel tax.
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As the noble Lord says, I am not going to give him a sneak preview of the Budget.
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My Lords, the greatest impact of this tourist tax will be on those who have to go on holiday during the most expensive weeks of the year—in other words, families with school-aged children. Does the Minister agree? Can he give us an indication of how much it is likely to cost such a family? I assume the impact assessment does this.
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We have not made a specific assessment of that number, no.
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My Lords, is my noble friend the Minister aware that mayors in my former region of the north-west have for several years been championing the tourist tax to boost their local economies and local employment?
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I absolutely am. Indeed, I was at one time a councillor in a Conservative borough in London that also championed a tourist tax. It is a good idea, but the decisions about the tourist tax should be local decisions for the local authority to make.
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My Lords, the Minister uses a European example: most countries abroad seem to have a holiday tax, so it must be a good idea here. I know this Government love most things EU-related, but many EU countries have a lower rate of VAT on hospitality, for a very good reason—because it is a good thing. The Government have already crossed their own Rubicon with a lower rate of VAT for this summer period for many families to enjoy things as a cost of living cut. Surely a lower VAT rate on hospitality follows the same example and thinking that the Government have already found.
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I think I am struggling to get across my main point here. If I could halve VAT for every industry in Britain and it had no knock-on consequences, that would be wonderful. But this has £11 billion of knock-on consequences. The thing that noble Lords need to think about is not whether it would be nice not to charge people money. Of course we would rather not charge people money. But if the Exchequer loses £11 billion, where is that funding going to come from?
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My Lords, I declare an interest as president of the Association of Leading Visitor Attractions. Given that tourism is probably the number one industry in more parliamentary constituencies than any other single private sector industry, is it not time, to demonstrate and reflect its importance, to bring tourism into the title of DCMS?
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I will pass on that thought to the DCMS Minister. I thank the noble Lord.