VAT cut could help pubs as drink drive laws bite

Reducing tourism VAT would help lower prices. Picture: Jacky ghossein
Reducing tourism VAT would help lower prices. Picture: Jacky ghossein
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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 33 per cent of more than 400 licensed businesses suffered a fall in turnover after 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.

Industry insiders report a tangible reduction in sales of alcoholic drink at lunchtime and in the early evening 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.

Could the Scottish Government help mitigate this impact by supporting the Cut Tourism VAT campaign’s call to reduce the tax from 20 per cent to 5 per cent?

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 £4 billion 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 in the European Union. The UK is one of only four countries not to take advantage of a reduced rate for tourism.

Scotland’s licensed trade operators are losing 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, 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.

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