Northern Ireland Hospitality Sector

I beg to move, That this House has considered the potential merits of a VAT reduction pilot for hospitality businesses in Northern Ireland. It is a pleasure to serve under your chairmanship, Dr Murrison. I welcome the opportunity to speak in support of a pilot scheme to reduce VAT for the hospitality and food sectors in Northern Ireland. This proposal enjoys support from across the political spectrum and the commercial sector. It has the backing of businesses, Hospitality Ulster, the Northern Ireland Food To Go Association, Ministers of the Northern Ireland Executive, Members of the Northern Ireland Assembly, and the Assembly’s all-party group on food to go, of which my party colleagues John Stewart and Diana Armstrong are both officers. This is a request not for special treatment but for fairness, economic common sense and the opportunity to test a policy that could strengthen businesses, protect jobs and support communities across every part of Northern Ireland while providing valuable evidence for policymakers across the United Kingdom. Hospitality is one of our most important industries in Northern Ireland. It contributes approximately £1.4 billion to our economy in gross value added, accounts for 2.5% of our economic activity and supports roughly 50,000 jobs. Those are not simply statistics; they represent family businesses, local employers, tourism operators, cafés, restaurants, hotels, pubs and food-to-go outlets. They are the very lifeblood of our towns, villages and cities, yet the sector is under immense pressure. Businesses have faced a perfect storm of rising energy costs, inflation, increased national insurance contributions, increases in the minimum wage and a continuing cost of living crisis that is reducing the disposable income of their customers. Many businesses that I have met in my South Antrim constituency, from the Stone Hound in Antrim town to Brown’s Coffee in Ballyclare, the McKeever group of seven hotels and many more businesses that I do not have time to mention are being forced to make difficult decisions.

I am grateful to my hon. Friend—he knows he is my friend—for giving way. I am enjoying his introductory remarks. Although I will not comment on the specifics of the pilot, I was married at the Dunadry hotel in his constituency, so I will take any opportunity to celebrate the hospitality sector in Northern Ireland. It is world-renowned, and it is loved by all those who get to enjoy it. It is second only to Staffordshire.

I agreed with the hon. Member until his last point. The McKeever group owns the hotel in which he was married. I had my wedding reception at the group’s Dunsilly hotel, and it is just celebrating the 40th anniversary—[Interruption.] Of the hotel, not my marriage, just to be clear to the hon. Member for Strangford (Jim Shannon). The group is being forced to make difficult decisions, looking at staff numbers, reducing opening hours and stalling or even cancelling investment plans. It is simply fighting to survive. The Northern Ireland Food To Go Association has told me that over 200 of its businesses have closed in 2026 to date, but Northern Ireland faces an additional challenge that does not exist elsewhere in the United Kingdom, as we share a land border with another jurisdiction.

I commend the hon. Gentleman, who is a friend and colleague, for securing this vital debate. I rise to support the UK-wide #VATsTheProblem campaign, alongside our local champions at Hospitality Ulster. The hospitality sector in Northern Ireland is an industry trapped in an impossible competitive vice. This month, the Republic of Ireland dropped its VAT on food and café catering to 9%, meaning that our border communities face a 120% tax disparity compared with neighbours just a short drive away. Does the hon. Gentleman agree that we are asking only for a fair fighting chance for our hospitality sector?

I thank the hon. Member for raising that point, because we do share a land border with another jurisdiction. In the Republic of Ireland, hospitality businesses already benefit from a significantly lower VAT rate of 13.5%, but the Irish Government have gone further by moving towards a 9% rate for food-led hospitality, as he said. That creates a clear competitive imbalance.

I thank the hon. Member for securing this debate on an important issue. Does he agree that in my constituency and right across Northern Ireland, many pubs, cafés, hotels, B&Bs and local attractions are operating on extremely narrow margins? Targeted VAT relief would improve cash flows and strengthen their resilience, particularly amid rising wage, energy, food and insurance costs.

I agree with the hon. Member. That is why many representative organisations think that VAT reduction would be a key enabler. It would not solve all those problems, but it would definitely help. With regard to the cross-border imbalance, a family deciding where to spend their money, a couple booking a wedding reception, an organisation booking an event or a visitor choosing accommodation is increasingly influenced by price. Businesses on the other side of the border enjoy a tax advantage that can amount to tens or even hundreds of thousands of pounds each year, depending on their size. The result is obvious. Northern Ireland businesses are competing with one hand tied behind their back, and the problem is about to get worse unless action is taken. It is especially striking that the United Kingdom’s 20% VAT rate for hospitality is increasingly an outlier across Europe. France applies 10%, Italy 10%, Croatia 13% and Germany is moving towards a reduced hospitality rate. Across Europe, Governments recognise hospitality as a strategically important sector deserving of support because of its role in employment, tourism and local economic development. The question we are asking the Government is simple: if other countries are using VAT policy to support growth, jobs and investment, why are they unwilling to even test whether such an approach could work in Northern Ireland? That is why the proposal for a Northern Ireland VAT pilot is so compelling. A pilot is not a permanent commitment or a leap in the dark; it is evidence-driven policymaking. It would allow the Treasury to assess whether a reduced rate increases economic activity, protects employment, boosts tourism and stimulates wider tax revenues through income tax, national insurance contributions and corporation tax. The advantages could be substantial. First, it would help businesses remain viable. For many hospitality operators, a VAT reduction would improve margins at a time when costs are rising dramatically. Some businesses would pass savings directly to customers through lower prices, while others may reinvest those savings into staffing, wages, training or expansion. Either way, the money would remain within the real economy. Secondly, it would support jobs. Hospitality is one of the largest employers of our young people, and it provides opportunities for people entering the workforce, developing skills or returning to employment. Protecting hospitality means protecting livelihoods in every constituency across our country. Thirdly, it would strengthen tourism. Visitors do not separate hotels, restaurants, cafés and attractions from their overall experience of Northern Ireland, so a more competitive hospitality sector would help to create a stronger visitor economy. Recent successes in attracting major international events have demonstrated Northern Ireland’s potential to attract visitors and generate significant economic returns, and a more competitive VAT regime would build on that success. Fourthly, it would support our high streets and local communities. Hospitality businesses create footfall, bring people into town centres and occupy premises that might otherwise stand vacant. Every restaurant, café or takeaway that survives and prospers contributes to the wider vitality of our communities. However, there is another important question: can this be done legally? The answer is yes. Too often, discussions about Northern Ireland are dominated by what cannot be done because of the protocol or Windsor framework. On this occasion, the legal advice is clear that neither the VAT provisions that apply to Northern Ireland nor state aid considerations would prevent the UK Government from introducing a reduced VAT pilot for the hospitality sector in Northern Ireland. Indeed, article 8 of the Northern Ireland protocol specifically envisages a situation where VAT arrangements may diverge to address competitive imbalances with the Republic of Ireland, which is the case here. The legal route, the economic case and the practical mechanism exist. What is required now is the political will to act. Of course, we have to be honest about the challenges. A reduction of VAT would have an up-front fiscal cost. The purpose of such a pilot is to measure whether increased economic activity could offset some or all of that additional revenue loss over time through growth, investment and employment. The question before us is not whether there is a cost, but whether the cost of doing nothing is greater. What is the cost of businesses closing? What is the cost of jobs being lost? What is the cost of investment leaving Northern Ireland? What is the cost of allowing a widening competitive gap between businesses north and south of the border? Those questions deserve answers, and a Northern Ireland pilot would provide them. Northern Ireland has often been described as unique. In this case, our unique circumstances provide a unique opportunity. We have a clearly defined geographical market, face a distinct cross-border competitive challenge and have an obvious comparator in the Republic of Ireland. That makes Northern Ireland the ideal test bed for a hospitality VAT pilot. If successful, the lessons learned could inform policy across the wider United Kingdom. This proposal is pro-business, pro-worker, pro-tourism and pro-growth. More importantly, it is practical and evidence-based and deserves to be tested rather than dismissed. The incoming Prime Minister talks of more devolution. Here is an opportunity for the Minister to put such a case in front of him. The Northern Ireland Affairs Committee has opened an evidence call for an inquiry on this subject, so it will not go away at the close of this debate. I therefore urge the Government and the Treasury to work with the Northern Ireland Executive, industry representatives and local businesses to establish a reduced VAT pilot for hospitality businesses in Northern Ireland. Let us give this vital sector a fair chance to compete, protect jobs and investment, strengthen our tourism offering and demonstrate that creative economic policy can help to unlock Northern Ireland’s full economic potential.

It is a pleasure to speak under your chairmanship, Dr Murrison. I thank the hon. Member for South Antrim (Robin Swann) for securing this debate on an important issue facing hospitality businesses in Northern Ireland and for his recent question to me in Treasury orals on the same topic. I look forward to meeting him to discuss it further, as I committed to on the Floor of the House. I thank hon. Members for their interventions, too. I congratulate my hon. Friend the Member for Newcastle-under-Lyme (Adam Jogee) on his festivities over in Northern Ireland.

I am grateful for the Minister’s belated congratulations. My wife probably feels like she has been married to me for a lifetime, although it has been three and something years.

rose—

Will the Minister give way on that point?

I will.

It is no wonder that the hon. Member for Newcastle-under-Lyme (Adam Jogee) had to go all the way to Northern Ireland to get an Ulster girl to marry. That tells you what Ulster women are like. They are the best.

rose—

Will the Minister give way? This is important.

I will.

I just want to put on record that I did not go to get anyone; she found me.

It is important that we return to the topic at hand, but I am very glad that my hon. Friend is happily married to, I am sure, a fantastic partner. The Government recognise the important contribution that hospitality businesses make to jobs, growth and local communities across Northern Ireland and the United Kingdom as a whole. Cafés, pubs, restaurants and hotels support local economies and, as the hon. Member for South Antrim set out, are important for employment, particularly of young people who are trying to find their way in the jobs market, get experience, get a foot in the door and ready themselves for a career of productive work. They also play a vital role in our high streets and town centres. I hear the concerns that have been raised about pressures facing the sector in Northern Ireland and across the wider country in terms of operating costs. I also understand the particular challenge in Northern Ireland from the comparisons with the hospitality VAT rate in the Republic of Ireland and cross-border competition. I recognise that the fact that consumers have that much more readily available choice is, as the hon. Gentleman said, a unique challenge facing businesses in Northern Ireland. I fully understand why he is raising the issue and campaigning on it on behalf of his constituents, and I commend him for his sterling work as a constituency MP.

Will the Minister also acknowledge and comment on the added pressures of the Northern Ireland protocol and the Windsor framework, which add extra burdens to businesses in Northern Ireland?

There are a whole range of challenges and also benefits from the protocol and the Windsor framework. I agree with the hon. Member that they do not provide constraints on the policy choice on VAT. I always find it frustrating when Ministers hide behind legal constraints that perhaps are not always there, and I want to be up front with him: if a Government chose to do this, the protocol would not be a barrier. Members have focused on the potential merits of a Northern Ireland VAT reduction pilot for hospitality, but VAT is a broad-based tax on consumption that applies to a range of sectors, and it also applies on a UK-wide basis. The Government’s view is that different VAT rates would create divergence between Great Britain and Northern Ireland, and impact the competitiveness of businesses between the two regions. I understand that Members are specifically talking about Northern Ireland, but across the country as a whole—some hon. Members did mention the broader campaign around reductions in VAT across the UK—a reduction to 10% in VAT for hospitality would cost around £11 billion a year, which is equivalent to the total expenditure on the Royal Navy or the annual child benefit bill. There would be significant practical challenges associated with introducing a pilot for a different VAT treatment for hospitality in Northern Ireland only. Businesses, His Majesty’s Revenue and Customs, and consumers would then need to operate in a system that created different treatments for otherwise similar transactions. There would be boundary issues and administrative complexity to work through. The fact that I am not announcing this change today does not mean that the Government do not take this issue seriously and understand the representations being made. We are also not standing aside. The Chancellor has introduced the Great British summer savings scheme, which is a temporary reduction in VAT on eligible family attractions and children’s meals over this summer, helping families with costs and encouraging footfall during the summer holidays. In England, the Government have also introduced new business rates multipliers for eligible retail, hospitality and leisure properties, a package of transitional reliefs, and the supporting small business scheme, which together amount to £4.3 billion of additional spending. The Barnett formula is applied in the normal way to those changes, so the Northern Ireland Executive received £185 million in consequentials as a result of those decisions. The Government—and I personally, if I have the honour of staying in this role—will continue to listen carefully to representations from the hospitality sector, from the Northern Ireland Executive and, of course, from hon. Members. We will meet after the summer recess; I am as good as my word. However, we do not believe that a Northern Ireland-specific hospitality pilot is the right approach. As tempting as it is to burnish my devolution credentials ahead of an impending reshuffle, I will not make that commitment today. I thank the hon. Member for South Antrim for securing this debate and for strongly representing his community. This is an important issue, and I am happy to continue discussing it.

The Minister is making a very good and clear speech. He referred to parts of Europe whose Governments are considering a VAT reduction because they recognise the importance of the hospitality sector. Are the Government considering that? If there is an evidential base for it, perhaps they and the Minister will at least consider it at some stage to see what can be used to our advantage.

Right now, we are engaging in what could be seen as a similar proposal to the one put forward today. We are doing a time-limited reduction in VAT, not for one sector and one part of the country, but for particular leisure and hospitality activities and consumption across the country as a whole. I am sure that His Majesty’s Revenue and Customs and others will conduct thorough evaluations of that, so that we can see the impact that it had. We expect businesses to pass the reduction in VAT on to consumers. Some big organisations, such as Merlin Entertainments, have already done that by setting new ticketing prices for families this summer, and many small businesses have been changing the prices on their menus for children’s meals. I hope that once this Great British summer savings period ends on 1 September, we will review that and look at the impact. Of course, the challenge with any VAT reduction is whether it will be passed on to consumers. To be clear, I do not begrudge businesses having more margin, but the objective of the hon. Member for South Antrim is to see prices fall. When VAT changes have been made in times gone by, the gains have not always flowed entirely to consumers. The Government have been working really hard to ensure that businesses pass on the reduction in the Great British summer savings scheme. As I say, we are really glad that many have done so. I look forward to continuing to discuss this important topic, and to seeing the impact of the temporary and targeted changes that we have made to VAT this summer. Question put and agreed to.