VAT increase will cost Border/Midland jobs

Restaurants in the border counties are particularly vulnerable to Sterling weakness as less people will come across the border from Northern Ireland and customers from the South will have a financial incentive to go North.
“Excise duty in Ireland is amongst the highest in Europe and an increased level of cross-border travel in Ireland saw growth in the level of private imports”.

A 1% increase in the current 9% VAT rate could cost up to 4% of all jobs in the food service and accommodation sector, which would equate to around 6,000 jobs, both part-time and full-time, claims the Restaurants Association of Ireland’s Chief Executive Adrian Cummins.

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28 September 2017 | 0

The only question is, how many jobs would actually be lost?

“It’s not beyond the bounds of possibility that up to 4% of the jobs in the sector could be shed,” he stated in expressing his “deep concern” about any increase to the VAT rate for Tourism and reflecting the RAI’s economic impact report authored by Economist Jim Power who states that any VAT increase would leave rural areas particularly vulnerable.

The RAI report assesses the impact that a 1% increase in the VAT rate would have on the food service and accommodation sector.

This sector currently employs 152,200 people directly and 17,388 indirectly.

A comparative of Q2 2011 and Q1 2017 demonstrates the advantages to the sector and employment as a whole because of the reduced VAT rate.

Between the second quarter of 2011 and the first quarter of 2017, the number of people working in the Accommodation & Food Services Sector nationally increased by 37,800, taking total employment from 114,400 to 152,200.

Key findings from the report include:

 

Weakening of Sterling & Brexit

Restaurants in general will suffer if visitor numbers from the UK continue to decline due to Sterling weakness. Restaurants in the border counties are particularly vulnerable to Sterling weakness as less people will come across the border from Northern Ireland and customers from the South will have a financial incentive to go North of the Border. Restaurants in rural areas all over the country will suffer if indigenous exporters, which are very important contributors to rural economic activity, come under pressure due to Sterling weakness.

Post-Brexit the following threats to the Restaurant sector can be identified:

 

  1. Sterling weakness and its consequences will remain a serious threat if a ‘Hard Brexit’ transpires; indigenous Irish exporters will come under significant pressure
  2. Farming and agri-food businesses are likely to be particularly vulnerable
  3. If rural businesses suffer, the restaurant sector in rural areas will be particularly vulnerable. The Dublin market will be less vulnerable due to its capital city status.

 

If the Common Travel Area is not preserved, the outlook for the UK tourism market will become very pressurised.

This can be noted when comparing the UK tourist figures from January to May 2016 to the same period in 2017 which saw a decrease of 6.8% in UK visitor numbers to Ireland. If the UK leaves the EU’s Open Skies arrangement, air travel between Ireland and the UK could be adversely affected with negative consequences for tourism and by implication, the Restaurant sector.

 

Dollar Weakness

Visitors from North America increased by 21.6% in the first half of 2017. This growth is potentially under threat due to recent weakness of the US dollar against the €uro. It’s currently trading just under 1.20 against the €uro, having been at 1.0384 at the end of 2016. This dollar weakness will damage the competitiveness of the tourism product from US visitors and if dollar weakness is sustained it poses a significant threat over the coming year.

 

Wage Pressures

Wage pressures are building in the economy due to a combination of minimum wage increases and the market pressures of the labour market. Given the labour-intensive nature of Accommodation & Food Services this sector is particularly vulnerable to wage pressures.

In any consideration of a 1% VAT increase in Budget 2018 the impact on the overall competitiveness of the tourism sector needs to be the key consideration. For many operators (particularly outside of Dublin) absorbing the 1% increase could be the difference between success or failure. If the 1% VAT increase were to be passed on to consumers, it would seriously damage the competitiveness of a sector that’s already coming under significant pressure from currency movements and other cost pressures.

“I’m appealing to the Government to think twice before loading another 1% VAT on consumers,” stated Adrian Cummins in recommending maintenance of the 9% VAT rate for the hospitality sector into Budget 2018, “This will cause enormous damage to the economy of border counties and rural Ireland.”

 

NI seeks VAT reduction

Ironically, while the hospitality industry here tries to avoid any VAT increase, NI’s hospitality industry is campaigning for a VAT reduction. An independent report shows that more than 2,000 jobs could be created in Northern Ireland’s hospitality sector if the VAT rate was cut from 20% to 5% on accommodation and visitor attractions.

It shows how a VAT cut would boost NI’s hospitality and tourism industry which not only operates in a competitive global market but faces direct completion from the RoI market where the present VAT rate of 9% applies on tourism accommodation, food and visitor attractions.

Existing UK-wide research also shows that thousands more jobs would be created if VAT on food was also cut to 5%.

The recently-published study, carried out by Nevin Associates, is the first to look at Northern Ireland statistics separately from the rest of the UK.

A cut in the VAT rate for visitor accommodation and attractions would result in a loss of Treasury income of £4.2 million in the first year, however over a five-year period the Treasury would gain by £32 million and by £109 million over a 10-year period.

The study also shows that in the Republic of Ireland average spend per visit is €398 (£350), almost double the €211 (£186) average spend in NI. Almost 80% of RoI’s visitors come from overseas whereas the great majority of NI’s visitors are from other parts of the UK.

The report forecasts that the cumulative improvement to Northern Ireland’s balance of payments with a VAT rate cut over 10 years would be £332 million (€377m).

“Whilst existing research shows a cut in Tourism VAT across accommodation, food and visitor attractions would create more than 200,000 jobs across the UK, this report is the first one that has looked in depth at the impact of a VAT cut on accommodation and visitor attractions in Northern Ireland,” commented Colin Neil Chief Executive of Hospitality Ulster, “It demonstrates the significant benefits that come from a VAT cut and shows a very short period before the Treasury benefits. At this point we can only extrapolate from previous UK-wide research what the benefits of a cut to VAT on food would be, but even modest estimates would see an additional 4,000 jobs added.

“This is why the research by the UK Treasury, promised as part of the Conservative/DUP Confidence and Supply agreement, is so important and why we must ensure the Treasury don’t create a research model that’s designed to reinforce their existing stand against a cut.

“It should be noted that the food and drink component of our hospitality sector is responsible for around 70% of our GVA annually.

“It’s time our ridiculously high VAT rate was reduced in line with many other countries including the Republic of Ireland. Indeed 17 of the 19 EU countries have tourist VAT rates below 10%.’’

Also commenting on the report’s findings, Vernon Hunte, Campaign Manager at the British Hospitality Association, added that there are clear benefits to reducing VAT in Northern Ireland, “… for the industry, the wider economy and the public finances and this will be a key piece of evidence as the Treasury take forward their own review.

“The Campaign and our supporters will continue to campaign to ensure the opportunity is taken to allow our industry to compete on a fair playing field with the 33 other European countries who already enjoy reduced Tourism VAT.”

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