Oral evidence: Promoting the tourism industry in Northern Ireland through the tax system, HC 577Wednesday 2 December 2015
Oral evidence, 2 December 2015.
Witnesses
David Wilson, Director of Public Affairs, British Beer and Pub Association, and Colin Neill, Chief Executive, Hospitality Ulster, gave evidence.
Chair
We will move as quickly as we can. We are constrained by time because, as you will be aware, we have got very important business in the Commons later, so we will seek to finish this session at 11.15 am at the latest. Just before we start, it is not a declarable interest but I want to declare, in the view of the fact we have got the British Beer and Pub Association here, that my sister is a pub holder in Gloucestershire. I just wanted that on the record. It is the Village Inn in Twyning, Gloucestershire. One or two Members have already been. Gentlemen, you are very welcome. Thank you very much for joining us. Perhaps I can invite you to introduce yourselves and make very brief opening statements if you wish.
Colin Neill
Thank you, Chair. I will begin, and thank you for the opportunity to present to the Committee today. I am the Chief Executive of Hospitality Ulster. I should also declare that I am a board member of Tourism Northern Ireland, or the tourist board as most people would know it. However, I am not here in that capacity today. Hospitality Ulster is a membership organisation and we have strategic alliances with the BBPA and the British Hospitality Association, and work closely with our counterparts in the Hotels Federation. We are a membership organisation working right across the spectrum: hospitality is pubs, bars, hotels, restaurants, visitor attractions, airports and sporting locations. It is a very diverse membership from five-star hotels, Michelin restaurants and world-famous bars right through to your local restaurant and community pub. Northern Ireland being what it is, the majority of the industries are small to micro-businesses; it is the nature of Northern Ireland. You have had lots of facts and figures today, so I will add a few more, just to keep it interesting. The hospitality industry in Northern Ireland sustains 60,000 jobs, with 45,000 of them in food and drink. 60,000 is one in 20 jobs. We are the eighth largest employer in Northern Ireland, with a higher GDP than agriculture. We pay £653 million in wages, £88.4 million in tax and we are worth over £1 billion to the Northern Ireland economy. Just picking up on an earlier query, we do pay some corporation tax. Collectively we pay about £70 million. It breaks down as pubs at about £16 million, hotels at £19 million and restaurants at about £35 million, so although it is not all of our people, the corporation tax is still an important issue for us as well as the roll-on effect of that with more money in the economy and more employment. You have already heard that tourism employs around 45,000 people, with a target to go to 50,000 at least within the next five years and to raise our revenue to £1 billion. It is a very important element of the Northern Ireland economy, and it is recognised as being so by the Assembly. As mentioned, we would be supporters of a VAT reduction on accommodation, food and visitor attractions. I will hand over to my colleague David.
David Wilson
I am David Wilson; I am the Director of Public Affairs for the British Beer and Pub Association. Our members brew about 90% of the beer that is brewed across the UK and they own or manage about 20,000 of the nation’s 50,000 pubs. As Colin said, the vast majority of those pubs, particularly in Northern Ireland and around 85% across the UK, are small businesses. The beer and pub industry is worth about £21 billion to the UK economy. We employ almost 1 million people in total: 600,000 direct jobs with another 300,000 through the supply chain. Interestingly, UK-wide, 46% of those employees are under 25, so we are a significant employer of young people, although it is interesting in Northern Ireland that the figure is lower, at 30%, so there is clearly more potential within Northern Ireland to drive employment growth around young people through expanding and growing the pub market. Food is really important to the modern-day pub; we now serve 1 billion meals a year in British pubs and it is key to a lot of pub profitability and sustainability. We have seen three very welcome successive beer duty cuts, which a number of you in this room have helped us to campaign for to persuade the Chancellor, which is a very targeted way of supporting the pub. I would say that your remit as a Committee is looking at tax across the board, and we would certainly encourage you to support further duty cuts, because they are a good way—a very targeted and cost-effective way—of supporting pubs. However, we also call for a review of the impact of VAT, because it is the biggest tax of all the taxes that pubs face. We have looked at this, and a couple of months ago, Oxford Economics did a report for us on the tax burden in total that pubs carry in the UK, and I am happy to share that with the Committee later. The total figure for the UK is £7.3 billion. That is quite a lot of money paid by pubs in tax. £3.7 billion of that is VAT, far and away the largest amount, and more than half of the total tax take, the Revenue receives from pubs. It is clearly a big issue, but there are big costs attached to that, and all the modelling that has been done by us and other organisations demonstrates that it is a huge cost to the Treasury. That is why, I suspect, we have had similar rebuffs from Mr Gauke and the Chancellor when we have asked for the issue to be addressed, because in the short term it does create a very big hole in the revenue. We understand that, and we also know that we would call for a graduated reduction because we know how important VAT is as an issue, particularly in Northern Ireland because of the specific issue around differential that you have already discussed this morning and last week.
Chair
With regards to the pub industry in Northern Ireland, how easy is it to classify the information? In other words, how do you know how much beer is sold to a tourist as opposed to somebody who lives next door to the pub? How do you classify it to make the case?
David Wilson
That is a good question. We do not measure it, but we know that in high-tourist areas the pub is a significant visitor attraction in its own right. What VisitBritain tell us is that for one in three of all visitors to the UK as a whole it is within the top three things they want to do when they come to this country. I am sure it is even more so in Northern Ireland, because of the atmosphere that you get and the people you meet in local pubs. That is one of the reasons why people visit places: to experience the culture, and the pub is, in my view, one of the best places to experience that culture wherever you are in the world.
Colin Neill
Tourism Northern Ireland shows that visiting a pub is one of the highest visitor attractions, and they do surveys about visitor spend. You can never go down to the pound notes, but you can trend where the spend is.
Chair
It is difficult to get a figure to support the case for tourism, isn’t it? It is more difficult for pubs than hotels, for example.
David Wilson
Yes it is, although 50,000 rooms across the UK are in pubs, so a lot of inns. This is less so in Northern Ireland, as I understand, but certainly across the UK pubs are realising that rooms above pubs are becoming more popular, and they are getting better at marketing them. They are investing in them so that the facilities are more attractive. We know that it is a challenge to encourage people to stay in pubs, but it is often a good-value alternative to hotels, particularly in rural areas where you may not have a lot of choice available to you.
Ian Paisley
Good to see you here, gentlemen. Last week we took evidence, and it was reported to us that, yes, there should be a reduction in VAT on accommodation and a reduction of VAT on visitor attractions, but definitely not food. Could you make the case for us today as to why we should push on the food and hospitality sector, and could you indicate to us, Colin particularly, the impact this would have in terms of wages and in terms of jobs?
Colin Neill
If you take Northern Ireland, the food and beverage sector is the highest in terms of spend at 33%. When we say beverage, alcohol is not included in this argument; it is a totally separate argument because it is a fully separate animal. It is a really important visitor spend, particularly when you take in the context of Northern Ireland. Over 50% of our tourism is domestic tourism. Our discretionary income in Northern Ireland is £97 a week compared with the UK average of £192 a week. I live 20 miles from Scotland, as I often say, albeit there is a stretch of water—I live in Larne—and there it is £190 a week disposable income, so we have an incredibly price-sensitive market. To holiday at home, food and drink would be a big chunk of that spend; therefore, it has a real disproportionate issue the dearer we are with it. Lots of people forget too that when you buy food in a restaurant the full 20% of VAT goes to the Chancellor, because food bought raw is zero rated, so you are passing it all on. In other products you are passing on the differential of what you paid in VAT and what you have added in value to the issue.
Ian Paisley
If the reduction were to take place and it were to affect not beverages but food—let’s focus on that—do you think that would have an impact on jobs and would it be positive?
Colin Neill
It most definitely would. Look at Southern Ireland as an example, and take their percentage rises in the three areas and apply the percentages across. We are starting from a lower level that is impacted by our history and our standing in world tourism as a trouble spot, although I must admit that if you talk to my eldest son, who is 28, he has no memory of the Troubles and has no concept of it. We have that moving rapidly away, thankfully, but if you take the actual rising figure in the Republic of Ireland and if you applied it to job creation, when you take their 9% right across the board, they have seen a 19% increase in jobs. We are talking over time here; this was 2011 until 2015, but if we see the same trend and increase, that could create about 8,500 jobs across the sector. If you proportion that again to 45,000 in food and drink, you will see that we would be heading towards maybe 50,000.
David Wilson
We pointed to a study that was done for us by Oxford Economics, which looked at the impact of different rates and reductions, and even a modest reduction of 5% to 15% on food in pubs would create an estimated 150,000 new jobs across the UK. Food in pubs is very labour-intensive activity, so if you grow that offer, you are able to offer more covers and the pub is fuller more often. Clearly you then need to employ more people directly. There are a lot of direct employment implications straight away.
Ian Paisley
Tell me how you think Northern Ireland is perceived as a cost destination? If you are planning a visit to Northern Ireland, what will you pick up in terms of people’s perception about the cost?
Colin Neill
It can be perceived as more expensive, particularly if you look at the Republic of Ireland, which is always a very direct element. You can even look at our own people, if you take the domestic numbers, choosing to go to the Republic of Ireland, and it is a cost-sensitive market. We have seen visits to the Republic of Ireland from Northern Ireland grow; in 2012 it was 1.3 million and it is now up to 1.7 million visits. We are voting with our feet. It is cost, and we are going the other way. The actual visits from the Republic of Ireland have been falling, their length of stay has been falling and their visitor spend has been falling, and all that indicates that people are assessing on the cost basis. There is an element as well of people checking the price of a room on different websites and all sorts, but they also read the reviews. I have just come back from Copenhagen at the weekend, and most of the reviews I read said that you need a mortgage to buy a pint, so that does feed through. It is not just the headline price.
Ian Paisley
Was that Copenhagen?
Colin Neill
Yes, they have one of the dearest VAT rates for tourism, and I would argue that they are not really in the tourism market.
Ian Paisley
In terms of events, do you find that people, because of the price of food and this cost-sensitivity issue that you have identified, are maybe booking their celebratory events such as weddings, parties or stag dos away from Northern Ireland as a result of the cost issue?
Colin Neill
Absolutely. As I said, it is always anecdotal in some of the figures, because getting trading figures out of members is always a challenge, but if you look at the headline figures you can follow the trends. Food and beverage in Northern Ireland this year has been consistently in Belfast about 5% down month on month. Outside Belfast it has been something between 7% and 12%. The closer you get to the border with the Republic of Ireland we are seeing people migrate across. Indeed, I will not name them because it will go on record, but the chamber of commerce of one town/city I visited had just come back from their overnight workshop and it was in Donegal. I thought that ironic given that, if you are a chamber of commerce trying to promote your own area, you would stay within your own area.
Ian Paisley
At least we are staying in Ulster.
Colin Neill
The exchange rate will always play a role in this and that is beyond us: sometimes it is in our favour and sometimes it is not, but you compound that with an 11% differential in VAT. It now makes having your wedding reception a third cheaper in the Republic of Ireland.
Gavin Robinson
Good morning to you both. Mr Wilson, what do you believe the rate of VAT should be?
David Wilson
We are not specifically calling for a specific cut. We are asking for a review, partly because we understand the economics are very challenging, but we do think that the case for a phased reduction could be made. We have presented the figures to the Treasury and what a cut to 15% on food in pubs would mean. We know there are challenges with that, because it is very difficult to target food served in pubs specifically. We would have to have a rate that was applicable to other food establishments, and that adds to the cost. It is not as targeted or as effective a measure for us, from our perspective, as, say, a beer duty cut would be. Beer is so important to pubs and the life of pubs that, if you cut duty, you automatically, as we have seen, see investment by the brewers and other pub owners in the pub estate. It directly affects and improves the pub, whereas a VAT cut would have that effect, but it is a significant cost with a longer payback time. We do not specifically support the 5% campaign, because we recognise that is a huge challenge.
Gavin Robinson
One of the issues raised with us last week by the Cut Tourism VAT campaign was that, as a country, we can have a standard rate of VAT and potentially two additional rates—be they reduced or, I assume, increased. We already have one of 5%. The point they were making was that it would be difficult to create an argument for an entirely standalone new rate. Are you not persuaded by that?
David Wilson
It is difficult, because it cuts across one of the other Treasury objectives, which is simplification. We see that with consumers. There is not much tax transparency when people go to buy a meal or have a pint in the pub. They do not know how much of what they are paying is going into tax. One of our objectives, if I am honest, as a campaign organisation is to promote how much is going to the Exchequer so people will realise we pay the second‑highest beer duty rate in Europe, second only to Finland. We pay 14 times more for our beer in the UK as they do in Germany. That seems crazy. We try to promote that through more tax transparency but, when we are talking about proposals to Treasury, it means they can and do argue, “You are adding to the complexity.” However, we would say that with the technologies now at point of sale, you can differentiate. You could create an environment that enabled those sorts of transactions to take place, where you separate the food element in the pub from the alcohol and the drinks and charge a lower rate for the food that is served in pubs. Clearly, it needs a bit of work; it needs time to develop. However, that is doable—and it has certainly been done in other countries, where they have reduced it.
Gavin Robinson
Mr Neill, have you settled on a preferred figure?
Colin Neill
Ideally, we would like to be the most competitive in Europe. Ideally, we would like to see the 5% level. We compete on a world stage. The further out we go, the smaller our markets are. If you offered me 9%, I would break your arm. If you offered me 5%—it is about what is achievable. Again, we are not opposed to a phased approach. If we got accommodation first and had to fight a bit more for food, we would accept that and go through. We have a very holistic approach on this, and that is why we have alliances with different parties who work at different elements of it. Our membership and our offer in Northern Ireland is much wider. On the argument about the simplification of VAT, separating out food and beverages and all of that, it is not that difficult. We already do it. Pubs and hotels have to do it for their business rates, which business rates are apportioned on a model of expenditure and receipts—a turnover model, as we call it. We have to do that anyway. It could easily be done.
Gavin Robinson
Regarding that distinction about the substantive rate of VAT and the two subsidiary rates, are you taken by the argument that the creation of a new 9% rate for the UK as a whole would be more problematic, but 5% would be more costly, if the hospitality sector were included?
Colin Neill
Having additional rates would not be problematic. Other than an information campaign for sales, most customers do not care what it is in taxes. What are they paying? Is that room or that meal X pounds? They will not worry whether we have to give 20% or 5%.
Gavin Robinson
Of course, customers just want to see a reduction in cost, but the Treasury are concerned about the implications for their take. You wrote the Chancellor a wonderfully well-crafted love poem on Valentine’s Day.
Colin Neill
Given that I penned it myself, I would not say it was a love poem. I would rather just call it an ode.
Gavin Robinson
In response to your love letter or poem—
Lady Hermon
Ode.
Colin Neill
Ode—yes, please. Thank you, Lady Hermon.
Gavin Robinson
It was an ode to George on Valentine’s Day. Has the Chancellor shown you any skirt or is he remaining coy?
Colin Neill
No, he has not responded to me in person. I feel jilted.
Ian Paisley
You shouldn’t take it personally.
Colin Neill
We have taken the approach in our lobbying that we have concentrated a lot of our energy on the Northern Ireland Assembly and then worked through our strategic partners in the BPA and BHA to go after the Chancellor. Rather than us all writing to him and getting the standard return letters, we have obviously had Members and the Minister for Enterprise, Trade and Investment writing to the Exchequer on our behalf. The Northern Ireland Assembly have passed a motion backing our position—and, indeed, it is cross‑party. In the transcript from last week, I noticed it said that Sinn Fein were not in support. Sinn Fein actually are on board as well. In our evidence pack you will see a comment from Sinn Fein. We have the backing of Northern Ireland. Indeed, even on the facts and figures, the Treasury will always push back on private‑sector facts and figures, so we have lobbied and successfully got the Northern Ireland Assembly to carry out the research and come up with the facts and figures to present. It would be our devolved Government presenting it to central Government, which is a much stronger case.
Gavin Robinson
Last week, we heard that the Treasury position was becoming more positive in response to the Cut Tourism VAT group, whereas Janice Gault from Northern Ireland Hotels Federation was indicating that she has had three similar letters over a period of four years. From either of your perspectives, do you see the Treasury getting to a better place on this or largely giving the same responses to the request?
David Wilson
There is definitely some momentum behind the campaign, but the response we have had from the Treasury—we obviously include a VAT ask every year as part of our pre‑Budget submission—remains the same. Ministers will say that they keep all taxes under review—and I am sure that is true—but we have certainly not picked up any warmth to the argument. We need to keep making the case. The challenge, particularly from a Northern Ireland perspective, is that this policy would have to apply UK‑wide, which means the cost, even though you can make stronger arguments, I would argue, in Northern Ireland than anywhere in the UK, would have to be borne across the whole UK. That is a really difficult judgment call for the Chancellor.
Colin Neill
I would come in on that and say that I have been part of the Grow NI campaign for corporation tax devolution, and for many years the early letters were, “Go away.” Then they started to make arguments, rather than just saying, “Go away.” Then they started to argue about the figures. It is a war of attrition. We are in the trenches and we are coming for them.
Gavin Robinson
Love has that feel.
Oliver Colvile
First of all, thank you very much for coming to see us. I am quite curious to understand why you claim that Northern Ireland is the one place that should end up having this. After all, I represent a city called Plymouth, which is about to commemorate 400 years of the Mayflower leaving to go and found the American colonies. Frankly, we have a significantly better argument for that, because we want to make sure we get as many American people to come and visit the West Country as we possibly can.
Colin Neill
I would like to come in there. I have never said that we are the one place. We have a very good argument, and I would agree that Plymouth has a very good argument. We should join forces and argue together.
Oliver Colvile
You would probably be better served, if I may put it to you, by trying to get the Government to devolve responsibility for VAT to the Northern Ireland Assembly and the Executive. Of course, the price of that would be a reduction in the block grant the English or British taxpayer is paying to Northern Ireland. Is that something you have thought about?
Colin Neill
All of our legal advice is that Europeans’ interpretation of European law prohibits a reduced VAT rate in one jurisdiction, like the United Kingdom. It is all or nothing. Obviously, it would affect the block grant, as corporation tax devolution will. It really is a UK‑wide campaign.
Oliver Colvile
You might have a better idea than me, but, as I understand it, the Northern Ireland Executive is not very keen to end up reducing corporation tax because of the implication that could have on the block grant—or am I being particularly uninformed?
Colin Neill
No.
Ian Paisley
They campaigned hard to get it, and they are looking forward to reducing it.
Colin Neill
We have a date set and a rate set: 2018 at 12.5%
Ian Paisley
There are a lot of companies moving from Plymouth to Northern Ireland.
Oliver Colvile
There are not that many to move. I would also say to you that, if you are going to reduce the VAT element, where would you end up increasing tax elsewhere? We still have to make sure we reduce—and, in fact, get rid of—this deficit by the end of this Parliament. Where else could we end up? Would you like to see income tax go up or corporation tax go up or what?
Colin Neill
I would like to see all tax come down, as I am sure the Conservative Government would as well.
Oliver Colvile
Yes, but we have to deliver public services.
Colin Neill
Yes. This is part of a process. Obviously, we are in an era of austerity. It is also about looking at how we create jobs. That is an important element of this argument. It is also a job‑creation tool. It could make a significant impact in lots of the regions outside London. As I mentioned earlier, London does not really have a tourism challenge; however, you cannot judge your policy on London. France decided to reduce their VAT to help the regions, to help the likes of Plymouth, Scotland and us. This is a longer game and, at the end of the day, it will create employment; it will make us far more competitive; and it will stop our tourism product being reduced. That is what we are seeing at the moment.
David Wilson
From the Beer and Pub Association’s perspective, we would not want to see a return to a beer‑duty escalator or an increase in beer duties to cover any revenue lost that you would get from a VAT reduction. First of all, it would not cover that loss because the sums involved are much greater, but equally that would be counterproductive. It would damage pubs with a measure that is meant to promote them—particularly food in pubs. That would certainly not be beneficial to our members.
Lady Hermon
Following the Chairman’s example, I should just explain that my son and his lovely fiancée run a small restaurant in Bangor in sunny North Down. I do not discuss this inquiry with them, but nevertheless I should put that on record. What priority does the current UK Government—the Conservative-majority Government—give to tourism across the UK?
David Wilson
From our perspective, we are very satisfied with the workings of VisitBritain and VisitEngland, for the bulk of our members. We work really hard with the GREAT campaign and the priority they have given linking the work our ambassadors are doing overseas with promoting exports as well. There is a very strong business argument for the GREAT campaign, and I am pleased that the funding for that has been secured—and, indeed, increased. After some years of persuading Ministers in the previous Administration, we launched the Pubs are GREAT campaign, because we recognised that visitors to the UK do want to go to great pubs—and they want to know how to find them.
Lady Hermon
Can I clarify what you mean by “the GREAT campaign”? Is that the GREAT Britain campaign?
David Wilson
Yes. You can opt in to the campaign with various subgroups. There are things like Inward Investment is GREAT and Exports are GREAT. For us, there were two elements. One is that we promote the heritage of beer. There is a Heritage is GREAT campaign, which includes some of our world-renowned beer brands. However, we also promote Pubs are GREAT through our website, working with VisitBritain. It is for people who are working out where they are going to stay, already having decided that they are coming here, to encourage them to visit pubs.
Lady Hermon
Does the GREAT campaign extend to Northern Ireland?
David Wilson
Yes.
Lady Hermon
Is it the GREAT United Kingdom campaign? That is the point I am making.
David Wilson
Yes, it does cover Northern Ireland. In fact, they are at great pains to ensure the work they do overseas is promoting every element of the UK, including Northern Ireland.
Colin Neill
Could I comment, Lady Hermon, on the priority given to tourism?
Lady Hermon
Yes, you have been in this business a very long time and you have been able to compare the approach taken by various Governments in recent years. Instinctively and by experience, what level of priority do you feel this particular Government attaches to tourism right across the UK?
Colin Neill
We have moved from a twilight industry to one they now mention. It is in discussion, but it is still not ranked up there. It is not seen as IT and all of these types of things. It is not seen as, “You need lots of people and skills,” which you do. It reflects on Great Britain and Westminster as well as Northern Ireland but, to quote one of our Ministers in Northern Ireland, I would say the problem with our industry is that we are everyone’s friend and no one’s family. What he meant by that is that lots of Departments share bits of us, but nobody owns us. I suppose what I would like to do is put ourselves up for adoption, because we are really good. We bring about £85 million to the family pot, so we are well worth having as a child.
Lady Hermon
Having said that, in Northern Ireland, with the devolved Administration, tourism is allocated to a specific Minister within the Executive, and it is well looked after within that portfolio.
Colin Neill
Lady Hermon, with respect, we still struggle. Although Enterprise, Trade and Investment looks after tourism, so many pieces of our legislation fall into other Departments, such as skills. It is even small things. Our licensing falls under the Department for Social Development; our entertainment licensing falls under DoE. Getting those joined up is incredibly difficult. I was fortunate. Under the better business regulation that Enterprise, Trade and Investment carried out, when Minister Foster was there, I chaired the pilot working group to look at reducing red tape. That was really effective, until it disappeared into the ether of everybody else’s Departments. Then it got into the old thing: “It did not come from our Department. It is nothing to do with us.” There is a huge challenge in tying that together. In the Northern Ireland context, with the reduced number of Departments, in the Department for Economy and Skills I hope we will see the skills come across as well. However, we do have a huge challenge. In the Northern Ireland context, I would like to see one of the junior Ministers carry the actual title Minister for Tourism, so we have one point to go and bite at their ankles.
Lady Hermon
A witness in one of our previous evidence sessions made that point. There should be a specific Minister here in Westminster tasked with the sole purpose of promoting tourism. It does come within the remit of a particular Minister at present, but sometimes the word “tourism” drops off the headed notepaper or the website. You would say there should be a dedicated Minister both in Northern Ireland and Westminster.
Colin Neill
Yes. We have a higher GDP than agriculture.
Lady Hermon
You mean in terms of Northern Ireland.
Colin Neill
Yes, in terms of Northern Ireland. We should have someone who is charged with that because, if you think about Ministers who have multiple briefs, most Ministers’ titles will not carry all of their remit. That would take two or three sides of a business card. However, it tends to be the ones that are mentioned that are the ones seen as the priority. If we had someone like that, it is a very visible demonstration that this is an important industry.
Lady Hermon
This is both at Stormont and Westminster.
Colin Neill
Yes.
David Wilson
It is a championship role. We have a Pubs Minister. In theory, he has a relatively limited remit. In practice, if we go to the Pubs Minister and say, “This is an issue for pubs. Can you raise it with ministerial colleagues across Whitehall?” he is able to do that. You can use that mandate to work across Whitehall. The Minister for Tourism and Sport, as we currently have, also has the capacity to do that. I am more relaxed about the title. It is more about an awareness across Departments about the enormous potential that tourism has—particularly DEFRA, which is our sponsor Department, because beer is classed as food. We are part of the DEFRA family, if you like. There is a lot they can do and a lot of funding they have to promote rural tourism. We need to encourage them to do more of it, because there is a lot more scope for things to be done, particularly around promoting the provenance of food and drink. That is something visitors are particularly interested in in a growing way: craft drinks, craft beers and craft spirits.
Lady Hermon
What explanation does your pubs Minister, or indeed the Government, give for the UK being one of the only three countries within the 28 countries in the European Union that have not used their ability to reduce VAT within the permitted levels of the EU Directive? Why on earth has the UK Government made no effort to do that? Why should we want to rank alongside Denmark? You have just explained that Copenhagen charges extortionate prices for a pint of beer.
David Wilson
We are a very successful economy. If you are the Chancellor, you make judgment calls—and you keep all of the taxes under review. That is a sensible position. We need to continue to make the case. The numbers are big. The direct impact in the short term is very large. Certainly, when we were in recessionary times, it would not make any sense at all to take that kind of gamble with the public purse. As we move into growth, our arguments become more compelling perhaps, because we are talking about the potential to employ particularly large numbers of young people, whereby we can tackle youth unemployment in areas where it is particularly high.
Lady Hermon
Of course, the evidence we have received about the Republic of Ireland is that its experience was exactly the opposite. During the economic crisis in the Republic of Ireland, when everything crashed, going from being the Celtic tiger to being linked in the same sentence as Spain and Greece, Ireland cut its VAT. Ireland did buck the trend—and it paid off. The argument to the Treasury should be, “This is what Ireland could do. This is an example of where it worked.” Is that not the argument that should be made by the pubs industry?
Colin Neill
It is the argument we would make, Lady Hermon. We have suffered in the Westminster context, because Dublin and the tourism world never really suffered. You wonder whether there even was a recession in London. Our challenge there is that Westminster is insulated by London doing well. They are seeing tourism boom out of the front door here whereas, once you get to Northern Ireland and Scotland, they struggle.
Lady Hermon
Could I move on to a completely different issue? I know, Colin, you are not here in your capacity as a member of what you refer to affectionately as the old tourist board.
Colin Neill
I still think of it as the tourist board and the water board. I come from that age.
Lady Hermon
A previous witness this morning used the expression that the real issue is that Northern Ireland is promoted as an island destination. Tell me about the remit of the Northern Ireland Tourist Board. Do you agree with that statement? It seemed a very bold statement that was made.
Colin Neill
It can help the complexity of the issue when marketing. It must be complex for Tourism Ireland in their marketing, tragically, to get it across. Obviously, the remit is that Tourism Northern Ireland, or the tourist board, market into the Republic of Ireland and then Tourism Ireland market outside that as one island. If I keep my Hospitality Ulster hat on, because I will get in trouble if I talk as a board member—
Lady Hermon
We would not want that. Talk with your preferred hat on, as part of Hospitality Ulster
Colin Neill
It is a challenge marketing something that has a different currency and different cost elements and stuff, when you are marketed as one product. The further you go away from Ireland—and, indeed, Europe—Northern Ireland becomes part of a bigger marketing strategy. I remember I was in a taxi in New York and the taxi driver asked me where I came from. I started out with “Belfast” and that did not work. I said “Ireland”, and he said, “Is that near London?” It is a complex element. As an industry body, given that GB is one of our largest markets, we would prefer to see that marketed by the Tourist Board, probably, yes. Then at least we would have control of our domestic market, which is our largest—ours, the Republic of Ireland and Great Britain—and that would make more sense. With that said, however, I understand that part of it is a political decision. There are lots of elements we have to accept, coming from where we come from, trying to get effective government. There are compromises needed to do that. I come to it more as, “Let us make it work. Whatever we have, let us sweat, sweat the asset, make it work and lobby hard that we get our fair share of whatever Tourism Ireland draws in. There is a lot of talk about what is better. Is it APD or is it a mix? We would be in favour of reducing the APD, but it does have counter-effects—and we are already losing a lot of local tourism, where they jump on a plane as well. People also need to remember that Dublin is effectively one of our airports. As an international hub, with a number of out‑of‑states coming through Dublin, we need to get something in place that says, “Turn left,” and draw them in as well. We also have the ferry connections and so on. Our stance on the wider tourism element of APD and stuff would be that we need a tourism visitor transport strategy, one that looks at our ferries, planes and trains—everything that makes access easy. We need to look at, “Is there someone flying into London? Okay. Is Heathrow then the hub? We need to be dragging them from there. Are they flying into Dublin? How do we bring them in?” We also need to look at how we optimise our own airports, which would be my members as well.
Danny Kinahan
I need to declare—I probably should have done earlier—that my wife runs weddings and things at the house, but I also get income from the Hilton Hotel on my land.
Colin Neill
I am writing these down to make sure they are members.
Danny Kinahan
Thank you very much. When you opened, you talked about the percentage of VAT that was paid by those larger companies, I am assuming.
Colin Neill
Corporation tax.
Danny Kinahan
Yes, corporation tax. Those are presumably all of the big hotels. Most of what we are talking about are the small‑ and medium‑sized businesses, and they do not pay VAT.
Colin Neill
Or corporation tax. Most of our small operators will be paying VAT.
Danny Kinahan
If it is below the threshold, they can claim it back.
Colin Neill
The problem is that, say, when you buy food, food comes in zero‑rated. There is nothing to claim back there, which is a clean 20% of your menu price you are paying in tax, whereas if you buy in wood for the fire or oil, there is a differential in VAT you can claim back. We are caught heavily on food. It is a very high proportion.
Danny Kinahan
You are asking for a review. Should we maybe be looking for something for the small‑ and medium‑sized enterprises so it is them claiming it back? I am going to get shot by the bigger companies. Is that something we should be looking at—that only a certain level is paying a smaller VAT?
Colin Neill
Again, it is tied up in what is legal, what is allowable and general accountancy procedures. There is an element where you can opt to pay a set rate of VAT and when you are lower it transfers across. However, it is still ends up being a sizable chunk of your revenue stream. Interestingly, I now have members who have a couple of restaurants in Belfast and are now opening in Dublin. When you ask them, it is because the VAT rate and the tax regime are far more competitive, so it is more sustainable for them. Rather than opening in Belfast, it is easier to go to Dublin; it is easier to manage from Northern Ireland.
Danny Kinahan
You talked about transport strategy. One of the briefs we have says that tourism increased by 15.8% in Ireland, and you are expecting the same in Northern Ireland. However, if you fly in mainly to Dublin, are you not more likely to stay in Dublin? Should it not be a bed strategy we have to get people to stay in the north?
Colin Neill
Lots of people who fly into Dublin go to Killarney and Cork. They have a huge tourism industry with huge hotels. It is not unreasonable to say that, if you are going to drive the 100‑odd miles to Killarney, you will drive the 100‑odd miles to Northern Ireland. It is about how we attract them there and having the provision to keep them there. Again, one of the challenges on cost, as mentioned earlier, is that most of the tour operators operate out of Southern Ireland. They have built up over the years there, because we have not had the ability to have the tourism product as such. They bed‑night in Donegal and then bed‑night again over the border. You will see them: they will do Giant’s Causeway, Titanic Belfast and then be back in Drogheda or somewhere to bed‑night, because it is cheaper on the accommodation.
Danny Kinahan
That is exactly what I was raising, because the impression I am getting is that people tend to stay in Ireland rather than Northern Ireland.
Colin Neill
Again, if you are operating as a tour operator, you can save money by operating outside Northern Ireland.
Dr McDonnell
Very quickly, it is good to see you both. I thank you for this. It is an excellent publication. All credit to you and your organisation for producing it. Forgive me; I had to nip out. I may be duplicating or covering ground already covered, but the thing that interested me—there obviously has to be some answer—was that the Treasury claims that a cut of VAT to 5% would cost between £9 billion and £10 billion, whereas Mr Wilson’s organisation suggests it might cost £2 billion. Where are they getting it wrong?
David Wilson
The £2 billion figure you quote is the total fiscal impact, which takes into account the extra revenues you get from extra employment. It balances off the initial cost. The higher figure is the Treasury sum they will quote for the initial outlay—this is the point Janice made earlier—but it does not take into account, over time, the increased revenue you get back.
Dr McDonnell
You are saying it is down nine but up seven. It will come up by seven.
David Wilson
I am not sure where they get the £9 billion from. Our Oxford Economics data said a 5% cut—just on food in pubs—would cost £5 billion as the initial direct impact. This is on the chart in the submission. They then get back £3 billion, so the net cost is short of £2 billion. But, as a result of that, you get nearly 500,000 extra jobs.
Colin Neill
At the end of the day, these are always people working out models and so on. However, it is interesting to note that the Government of the Republic of Ireland estimated the cost would be £350 million and it came in at £107 million. There are always huge differences. Treasuries will always err on the safe side of the model.
Dr McDonnell
The other point is more directed to you, Colin. The argument is that cutting VAT would reduce prices and would make us more competitive. Have you any guarantee in that direction? Would your members not put themselves first?
Colin Neill
Pocket the money and go on holiday.
Dr McDonnell
Would they pocket the money and take off to Spain?
Colin Neill
I wish they were on those sorts of margins. There are all the models and extrapolations of numbers, and they vary greatly. I am always a great believer in looking at somebody who is doing it. In the context of the Republic of Ireland, it has pretty much the same geographical location and pretty much the same offer. It is still saying we have a lower level of tourism, but the experience of the Republic of Ireland is that about 50% was passed on and 50% was reinvested. That has been seen throughout the last four years—and, indeed, the Republic of Ireland Government are now happy with that. They did give a nod to Dublin hotels in the last Budget to say, “We are watching to make sure you do actually use this to stimulate growth.” Dublin’s trouble is a capacity issue at the moment. That is what is driving their price. They do not have enough rooms, and there is a quicker yield in building apartments than there is in building hotels. That is what is taking up space in Dublin. There is real evidence from the Republic of Ireland on this. If you just use their percentage figures along the line of 50/50, that is a fair assumption. Not everybody is going to pass it all on, but you do need that spare capacity to reinvest and keep this going. Visitor numbers in Republic of Ireland went up 15.8%. If we were to get that, applying that percentage to our baseline at the moment, it would be an extra 711,000 visitors. The total revenue was up 13.25% in the Republic of Ireland. If we apply that to our current figures over the same time period, you would see about another £99 million. Again, on jobs, which is a really important issue within this, because this is also about job creation, the Republic of Ireland has seen a 19% increase in job creation. Again, that would translate into about 8,500 additional jobs over a similar timeframe. If you take the Republic of Ireland, they are doing this. They have experienced this and they have now committed to keeping the lower rate indefinitely. Albeit we have historical issues, so our baseline is still lower, it is not unreasonable to transfer those percentages across and say that this is how we see it could work.
David Wilson
If I may, there is also the issue of economic confidence within the sector. Certainly from a duty‑cut perspective, as I mentioned earlier, the immediate effect of getting rid of the duty escalator and having cuts in beer duty was increased levels of investment and confidence. People in our industry can plan ahead; they can invest in that new pub kitchen they have been wanting to put in but were not sure the viability of the pub was going to be sustainable. If you know duty rates are coming down, rather than always going up, you can start to plan and invest more confidently. That is reflected in the assumptions we make about the extra employment numbers that were being created.
Dr McDonnell
I have another question to ask, but this strikes me. Anecdotally, how much of pub business is regulars, locals, and how much of it is tourism?
Colin Neill
It will vary, obviously, depending on what your tourism offer is in a particular location. A big chunk will be friends and family. I often talk to some of our members about the tourism market, and they say, “I do not get tourists.” You start to ask, “Do you get anybody in with friends and family from Canada?” “Yes.” I often talk about it as visitors, because our industry understands a visitor better than a tourist. Sometimes a tourist has to look foreign to be foreign in our industry. Obviously, in Belfast, because that has a higher density of tourism product, you will get a bigger chunk there. That varies around the regions. The issue of VAT accessibility and stuff will help to share that. Northern Ireland is really strong on its cultural tourism. Culture is the people to me. We are one of the few places where you can go and be part of the night, rather than observe the night. We have a fantastic offer. To use a line, we are pregnant with opportunity. However, it is now about removing the barriers to that.
David Wilson
A lot of pubs are becoming food destinations in their own right, because food is growing as a source of profitability for the sector. Where pubs have the capacity to install new kitchens, create new covers and expand, that is where the growth opportunities are.
Dr McDonnell
Colin, are we not caught in Northern Ireland between a rock and a hard place, in that we do not have the capacity for the big event and we are see‑sawing between that and low occupancy? This is maybe off your pitch and on to the hotel or bed pitch. On the one hand, we have a fair amount of under‑occupancy, but then, if there is a big event, we do not have the capacity to cope with it.
Colin Neill
It is totally on our pitch, too, because lots of our members would be hotel members. We share them with the Northern Ireland Hotels Federation. We do have challenges on bed nights. If you take in Belfast, particularly with the development of the Belfast Waterfront conference centre, as it will be now, you are seeing people stepping up there. We are seeing lots of applications for new hotels to build on that. Obviously, the challenge with major events, when you bring something major outside Belfast, is that there is an issue of capacity. I suppose it is a bit like the chicken and the egg. Before you are going to invest in your 100‑bedroom hotel, you want to know that the long-term product is going to grow and be there. That is one of the challenges. If you take the tour operators, if you are running a coach you need, in principle, 53 bedrooms. You will approach a hotelier and say, “Next July or August, I am coming”—to Belfast or anywhere in the Province—“and I need that reserved.” If you only have 60 rooms, you are not going to reserve that. We need to be able to invest in 100‑bedroom hotels to have the capacity to say, “No, you can stay.” To get that market, we need to know we have a competitive VAT rate—and the tour operators will not continue staying outside the Province.
Chair
We will have to wind up. It has been a very interesting session. Time is against us. Thank you very much indeed for your evidence. Thank you.
Colin Neill
Not at all. Thank you. Oral evidence: Promoting the tourism industry in Northern Ireland through the tax system, HC 577 7 [1] The British Hospitality Association subsequently provided a correction to the Committee that the cost to the Treasury would fall to £700 million, not £500 million as initially stated