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Business / VAT reduction on tourism expected to have little impact

Most people visit Shetland for the scenery and the wide open spaces. Photo: Shetland News

THE CHANCELLOR’S decision to cut VAT to five per cent for the tourism and hospitality industry for a period until January 2021 will have little impact on areas such as Shetland, according to the local sector.

Ever since lockdown was implemented in response to the growing Covid-19 crisis the local tourism sector had voiced concern that they were facing “three winters in a row”, [see link below] thus spelling out fears that the economic impact of any late recovery of the 2020 season would be minimal.

Coronavirus throws tourism sector into deep crisis

Robert Smith, managing director of Brudolff Hotels which the owns the Lerwick, Shetland and Kveldsro Hotels, said more targeted support for areas such as the Highlands and Island was required.

Emma Miller of the Shetland Tourism Association, representing over 60 mainly smaller tourism operators in the isles, said most of her members were not registered for VAT.

Northern Isles MP Alistair Carmichael, meanwhile, welcomed the chancellor Rishi Sunak’s move but called on him to extend the scheme until summer next year, while regional Conservative MSP Jamie Halcro Johnston spoke of “a major boost for the Highlands and Islands”.

Smith said: “Any assistance is welcome, but five per cent of nothing is the same as 20 per cent of nothing – i.e. I don’t see this making much of a difference for accommodation providers in locations such as ours.

“There needs to be a scheme for accommodation providers in the Highlands and Islands which will make a difference. Extending the rates holiday for another year would be a great boost, and this could be targeted by location.”

Miller added: “Hotels and larger businesses may see a longer term benefit in paying less VAT, but it won’t help cash flow as VAT to suppliers still needs to be paid at the point of supply.

“With visitor numbers unlikely to increase dramatically in the immediate future, the local industry will rely on Shetland folk holidaying at home this year and rediscovering Shetland by staying with local accommodation providers and making use of local tour guides, food producers and visitor attractions.”

Carmichael said he had campaigned for years for a reduced rate on tourism VAT as a way to support local jobs and growth.

Speaking in the House of Commons the MP said: “Having campaigned for many years for a five per cent rate of VAT for the visitor economy, can I welcome that part of the chancellor’s announcement today.

“Can I ask him though not to close the door on the idea of extending or making that permanent?

“I fear that in my constituency where we have a highly seasonal economy, many of the businesses won’t benefit from it because they are not intending to reopen again until next spring.”

But the chancellor Rishi Sunak was not in favour of such an approach. He said: “I know that this will make a big difference, it is important though that this is time limited.

“That is in keeping with other countries that have done something similar. I will happily bear all future tax suggestions but in the short term I hope that his constituencies get the boost in confidence that they will need.”

Carmichael added: “We need a longer-term vision for the economy, including for those businesses and workers still left out of support. Without a 12-month package of support measures we risk merely delaying the harm to our economy and to people’s lives.”

Meanwhile, Halcro Johnston said the announcement was a particular boost for Shetland which is heavily dependent on income from visitors.

“The chancellor’s initiative on VAT is a welcome boost for Shetland where a very large number of jobs are directly linked to the hospitality and tourism sector,” the MSP said.

“We now need to ensure that local businesses can take advantage of the relaxation of lockdown and start welcoming visitors in a safe and responsible manner.