Blog: Time to dilute impact of drink drive limit on licensed trade by cutting tourism VAT to 5%?

Eileen Blackburn
Eileen Blackburn

Eileen Blackburn is head of business recovery and Barry Laurie is a tax partner at French Duncan Chartered Accountants

Given the fact that the recently introduced drink-drive limit has led to a slump in business, perhaps it is time for the Scottish government to help the licensed trade by adding its support to the Cut Tourism VAT campaign?

The Bank of Scotland’s latest quarterly business monitor reveals that some 33 per cent of more than 400 licensed businesses suffered a fall in turnover since the introduction of the new legislation.

And the Scottish Licensed Trade Association, British Institute of Innkeeping and Scottish Beer and Pubs Association have each reported significant impacts – up to 60 per cent down on sales – on pubs, which is also likely to affect smaller rural hotels which act as the local pub in the same way.

Barry Laurie
Barry Laurie

Industry insiders report a tangible reduction in sales of alcoholic drink at lunchtime and in the early evening in the local/casual bar trade as well as a reduction in the evening as customers restrict alcohol consumption out of growing concerns about the new drink-drive limit the following morning. Indeed, there have even been reports of pressure being put on hotels for later check-out times by overnight function guests.

Could the Scottish government help mitigate the impact of the drink-drive limit on the trade by supporting the Cut Tourism VAT campaign’s call to reduce the tax from 20% to 5%? There are some grounds for optimism.

The campaign recently ranked UK political parties according to their support for the argument that a cut in VAT would boost the UK economy by £4bn and create 120,000 jobs – and the SNP was ranked second, due to its commitment to examining a reduction, but falling short of pledging to reduce the rate.

The campaign is seeking for the rate of Tourism VAT to be brought into line with competitor destinations within the European Union. There are a limited number of areas where EU rules allow governments to implement a reduced rate of VAT. In the case of tourism, the UK is one of only four countries not to take advantage of a reduced rate.

This means that British families, or international visitors choosing a British holiday, would pay almost three times as much VAT compared to a French or German break, and twice as much as one in Italy and Spain.

As such, Scotland’s licensed trade operators are continuing to lose further ground to our European rivals in attracting domestic and international holidaymakers. Reducing tourism VAT would help lower prices, but also allow businesses to increase investment in other areas.

Of course, in addition to lobbying the Scottish and British governments to cut tourism VAT, there are various measures that licensed trade operators can take themselves to mitigate the impact of the drink-drive limit on their businesses. A starting point would be to review their business plans and budgets.

In common with many business sectors, it might well be that licensed trade operators will need to consider diversifying from their traditional offering in order to respond to changing market conditions. There may be opportunities to operate more efficiently and cost-effectively and perhaps provide a more varied or improved offering.

And some enlightened restaurateurs are already making arrangements with local taxi companies to offer customers a discounted taxi service as part of their marketing campaigns to encourage diners into their establishments. The exploration of such entrepreneurial initiatives is to be actively encouraged.

Meanwhile, rather than relying solely on the Scottish government and the 56 SNP MPs to exert their influence in Westminster to help Scotland’s licensed trade through active support of the Cut Tourism VAT campaign, we would encourage licensed trade operators take steps to ensure that they have a fresh look at their business plans and budgets. Professional business advice is on hand to help.

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