HC Deb 23 November 1995 vol 267 cc785-6
7. Mr. David Atkinson

To ask the Chancellor of the Exchequer what response he has made to recent representations he has received from the tourist industry on the level of VAT. [696]

Mr. Heathcoat-Amory

I have received a number of representations in support of a reduced rate of VAT for tourism services, but there is no compelling evidence that the level of VAT in the UK places tourism at a disadvantage.

Mr. Atkinson

Does my hon. Friend agree that the British tourist industry is rightly seeking fairer competition between the tourist industries of EU member states and a level playing field on the rate of VAT imposed on those industries? Can he confirm that it is his policy to seek the eventual harmonisation of VAT throughout the European Union? If so, when does he expect it to be achieved?

Mr. Heathcoat-Amory

I do not think that harmonisation can be achieved—each member state sets its own rate of VAT. I hope that member states will always do so. As for VAT on hotels and tourist services, some European countries levy a reduced rate and some levy a standard rate which is often higher than that in the United Kingdom. There is no clear link between those differences and the relative growth in tourism services. In addition, we favour a simple system of VAT and further reduced rates would complicate it. The tourism industry is important and it benefits from the general success of the British economy, but the case for VAT concessions is not established.

Mr. Bayley

Does the Minister recall that under the last Labour Government there was a balance of trade surplus in tourism? Now, there is a massive balance of trade deficit. Will he admit that one of the main reasons for that deficit is that, under the Conservative Government, the VAT rate has been increased from 8 per cent. to 17.5 per cent?

Mr. Heathcoat-Amory

If the hon. Gentleman studies the most recent figures from the British Tourist Authority and other organisations, he will find that over the past two years our tourist industry has performed extremely well, and better than many of its European competitors. The rate of VAT is not the determining influence. We have transformed the British economy and with that the outlook for tourism and hotel services.

Mr. Wilkinson

May I agree with my hon. Friend that the rate of VAT is not the determining factor and support him in retaining national VAT flexibility? Will he consider, however, the transport infrastructure for London, the capital being the strongest magnet for tourists from overseas? We urgently need crossrail.

Mr. Heathcoat-Amory

Yes, I note what my hon. Friend says about the need for other supporting services, including transport services. These services are taken into account in setting budgetary and expenditure plans for the coming year.