A cut in VAT for the hospitality sector would slash unemployment figures

12 December 2014
A cut in VAT for the hospitality sector would slash unemployment figures

VAT reduction from 20% to 5% would create 670,000 jobs, says Jacques Borel, veteran lobbyist and founder of the VAT Club

But I worry about some key factors behind the headlines. The simple fact is that while the UK economy is patently on the up, individual salaries certainly are not and,
as a result, neither are the Chancellor's revenues from income tax. And youth unemployment at about 16% - double the national rate - is especially worrying. I believe that a comprehensive change in the VAT regime would address youth unemployment, help raise real pay and add personal and corporate tax revenue to the Treasury.

At VAT Club Jacques Borel our research shows that for a VAT reduction from 20% to 5% for the hospitality sector there would be the creation of more than 670,000 jobs at a net cost to the Exchequer of £800m. With the help of a VAT cut we could not only see the overall unemployment rate reach 4.5%, but it would also reduce pressure on the benefits system and slash the youth unemployment figure.

It would not be acceptable that businesses just pocket the difference in a new tax environment. An essential part of the VAT Club campaign is to convince the government
that the benefits of a VAT cut will be passed back to consumers and reinvested in the people and fabric of the businesses.

We have therefore reminded our members and our supporters of the Business Pledge that would see the benefit of a VAT cut from 20% to 5% allocated as follows:

  • 60% returned to consumers by way of reduced prices
  • 20% allocated to investment in facilities and improvements in the building fabric
  • 10% earmarked for payroll benefit (ie salary increases)
  • 5% invested in staff training and apprenticeships
  • 5% reserved for contingencies, profits and dividends

A VAT cut on labour-intensive services such as hospitality and tourism would provide a major stimulus to jobs and growth. Even at a lower VAT rate an expanding business will still return tax on additional sales and more tax on business profits. Employees will progressively come into taxation and will pay more NI too, and the
national benefits payments budget will be correspondingly reduced. The Regional Growth Fund calculates the cost of creating one job to be £52,000; we believe we can
create jobs for only £1,178 apiece.

I strongly believe this is a win:win prospect for the government, for business and for individuals, and this is what we are working to achieve.

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