HL Deb 17 July 1979 vol 401 cc1276-9

2.55 p.m.


My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government whether they will consider exempting the hotel industry from the new VAT increase in order to encourage foreign exchange.

The MINISTER of STATE, TREASURY (Lord Cockfield)

No, my Lords, VAT is a broad-based tax on consumer expenditure, and reliefs can only be justified on the most stringent criteria. It would not be appropriate to exclude the hotel industry from the VAT increase announced in the Budget.


My Lords, while thanking my noble friend for that reply, may I ask whether he is aware that hotel prices in London now exceed those of other capital cities, even during the off-season? Would he not review the VAT rate, since this industry is a large money earner?


My Lords, the Government fully appreciate the important contribution made by the hotel industry in common with other industries which produce invisible earnings. But, in the Government's view, it is unlikely that the increase in the rate of VAT on hotel accommodation would, of itself, deter many potential overseas visitors, whether they come on business or on holiday, given the many factors which people take into account when planning a visit abroad.


My Lords, can the noble Lord tell me why hotels should be relieved from VAT when housewives have to pay the increased rate of VAT on everything that they buy? The increase will create terrible trade union difficulties during the winter of this year.


My Lords, as the Government do not propose to relieve the hotel industry from VAT, the noble Lord's question does not arise.


My Lords, have the Government lost their heads completely? Why are they not a little rational and pragmatic about this question for a change? Do they realise what the effect of an increase in VAT means to the tourist industry, upon which we rely because of the decline in our manufacturing exports? Do they realise that now and again people need to go on holiday? Is it not asking too much of these people to pay not only the very high cost of accommodation, which no one would deny—it is not everyone who can afford it—but also the increase in VAT?

In view of the dispute between the Prime Minister and Sir Keith Joseph about another matter, is it not time that Maggie looked into this matter herself and displayed the common sense which is attributable to her?


My Lords, I am most obliged to the noble Lord for recognising the common sense which actuates the Government in all their policies. Far be it from me not to recognise a compliment paid by a noble Lord opposite. We have looked very carefully at the question of the importance of the hotel industry in relation to foreign earnings; the Government realise how important it is. They do not regard the VAT increase as a crucial factor here. However, perhaps the noble Lord would also care to take into account the fact that if relief from tax is given on one item of expenditure, the cost of the relief must be recouped elsewhere.


My Lords, can the noble Lord tell us whether there is any one industry which would not be well served by the removal of VAT? Is he aware that when the Spanish Netherlands rebelled against Spain they won the universal sympathy of Europe?—for they were rebelling against a 10 per cent. tax on trade transactions, which was clearly intolerable for a trading community.


My Lords, I am most obliged to the noble Lord for the information which he has given us. All taxes are unpopular and everybody paying them would be only too glad to be relieved from them. The Government's policy is, in the long run, directed to curb the level of Government expenditure and thereby to reduce, we hope, the level of taxation.

Viscount THURSO

My Lords, has it occurred to the noble Lord that whereas the housewife does not pay VAT on food, the tourist does? Will he consider whether or not it is possible to relieve the food element in the hotel bill, covering bed and breakfast and so forth, from VAT?


No, my Lords, it is not only the tourist who has to pay VAT on the food element in a hotel bill; the resident of this country also does. In fact, we are holding the scales fairly between the residents and the I visitors.


My Lords, I should like to ask the Government one more question. If we exclude the tourist industry during the summer, during which time the hotels are all fully booked, during the winter they go through a difficult period. Would it not encourage those foreigners who visit this country anyway to come during the off-season period if we lowered the VAT rate during that time?


My Lords, I am sure that the hotel industry itself will take every step it can to attract visitors during the off-season. However, in the Government's view this does not itself constitute a case for giving relief from VAT.