An open letter to the prime minister

12 August 2011
An open letter to the prime minister

A year on from David Cameron's assertion that tourism was essential to rebuild the economy, the barriers to growth are as high as ever. In an open letter to the Prime Minister, British Hospitality Association chief executive Ufi Ibrahim appeals for a framework for growth

Dear Prime Minister,

In a speech you gave on this day last year (12 August 2010), you said "tourism is fundamental to the rebuilding and rebalancing of our economy".

The British Hospitality Association responded by publishing a proposition for an industry and government partnership in which we said that, with the right framework, the hospitality industry, which already employs over 2.4 million people, could create a further 236,000 new jobs by 2015 and could achieve your objective of rebalancing the economy.

I am writing now because there is a danger that this target will not be met without some action from the government. The right framework has not been created, barriers to growth have been maintained and, worse, some new ones have been erected - for example the increase of VAT to 20%, and the introduction of new regulations on employment.

Let me say, at the outset, that in John Penrose we have a minister for tourism who is seriously championing the tourism and hospitality industry in Whitehall and who has given us every support. We are also encouraged by the government's intention to tackle the issue of red tape - one of the most irritating and expensive challenges which face hospitality businesses today.

Barriers to growth
However, at present, there are significant barriers to growth. The industry's state of uncompetitiveness compared to other EU member states is clearly damaging UK tourism. Visa costs and controls are a significant deterrent for potential visitors. The Regional Growth Fund appears to have completely ignored the hospitality and tourism industry. The introduction of Local Enterprise Partnerships in England gives us little confidence that the industry will be recognised for what it is - the driver of the vast majority of the country's local economies.

All these are issues which will prevent us from creating those 236,000 new jobs.

Take competitiveness first. In your speech you said: "We urgently need to advance our trade with the great emerging economies and to increase our exports throughout the world."

Yet tourism is the only export industry which has a domestic tax levied on it: VAT.

Uncompetitive VAT
The high rate of UK VAT on hotel accommodation and attractions creates the most significant barrier to growth and job creation. Member states of the EU recognise that tourism is an extremely price-sensitive sector, subject to intense international competition - as a result, all but two others (Denmark and Slovakia) have a reduced rate of VAT on accommodation. They recognise that the direct revenues foregone as a result of the reduced rate are compensated by the additional demand that these reduced rates generate and, critically, the creation of new jobs.

France's VAT is 5.5% for accommodation, Germany's is 7% and Italy's rate is 10%. Twelve countries have also introduced a reduced rate for restaurant meals and 18 have reduced rates for entry to attractions.

These reduced rates make UK tourism uncompetitive compared with the rest of Europe - a situation which was made worse when VAT was raised to 20% earlier this year. According to the World Economic Forum's latest Travel and Tourism Competitiveness Index, the UK ranks 135th out of 139 countries on price competitiveness.

That, surely, says it all.

In your speech, you said: "Currently, we only have 0.5% of the market share of Chinese tourists." This is not surprising. Visa costs are high and there are lengthy delays in approving visa applications. We make it too difficult for non-EU residents to visit Britain.

Turning to the introduction of Local Enterprise Partnerships, it is not yet clear whether they will have the resources to take tourism (of which hospitality is a key element) in their areas to new levels, as you have suggested they should.

This is despite the fact that research by Oxford Economics shows that hospitality is one of the most significant of all economic drivers. It accounts for as much as 11% of direct employment in some areas and up to 7.8% of wages and profits for every LEP so far established.

The hospitality industry needs to be deeply integrated into the total business plan of every LEP and every local authority, so that it can play a key role in accelerating local and inward investment, creating jobs and upskilling employees.

Damaging policies
As world tourism becomes ever more competitive, does the government recognise the damage that present policies inflict on UK tourism? International tourism is moving out of recession: the number of world arrivals grew by 6.6% in 2010 compared with 2009 (3.3% in Europe). But in the UK, the number marginally declined.

At this rate, we will not reach your stated objective of Britain returning to the top five tourist destinations in the world, nor will we lift the proportion of what people spend on holiday in the UK from 40% to 50%.

We remain convinced that the industry has huge potential for growth. Those 236,000 jobs can be created; 200,000 hospitality jobs were created in the last decade or so. In the same period, more than 1,100 hotels have been built, 100,000 rooms have opened and over £25bn has been invested.

This investment will continue if government policies support the industry and establish a framework in which growth can be encouraged, stimulated and rewarded. But without those policies, the potential of the industry will not be reached. Not realising the industry's potential would simply be a waste - a waste that the country cannot afford.

Yours sincerely,Ufi Ibrahim

What the industry wants from government
1 To recognise the uncompetitive nature of British tourism and to reduce the rate of VAT.
2 To recognise the difficulties and cost of completing visa applications and to address the issue to achieve your aim of increasing the number of Chinese tourists from 0.5% to 2.5%.
3 To recognise the damage that Air Passenger Duty is inflicting on UK tourism.
4 To urge LEPs to recognise the importance of tourism and hospitality in their area and to integrate the industry into all local plans.
5 To encourage the Regional Growth Fund to recognise the job creating potential of the hospitality industry and to support key regional tourism projects in the second round of bids.
6Greater co-ordination and collaboration between the various agencies with regard to the mega events in 2012 - the Olympic Games and the Queen's Diamond Jubilee - to maximise the opportunities presented.
7 A level playing field on which private sector bids for the outsourcing of public sector food service and general facilities management contracts can be fairly assessed. Commercial companies could successfully bring significant efficiencies to public services, but they are being prevented in doing so by unfair obligations and restrictions.
8 A cross-cabinet committee for hospitality and tourism, so that policies which are affecting the industry can be agreed and co-ordinated across Whitehall.

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