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Treasury must investigate if post-Brexit tax powers can boost tourism

20 March 2017

In its report, Promoting the tourism industry in Northern Ireland through the tax system, the Northern Ireland Affairs Committee calls on the Government to investigate if powers over VAT, likely to be repatriated to the UK upon leaving the EU, can be used to boost the tourism sector in Northern Ireland, which at present is subject to a VAT rate that is more than twice that in the Republic of Ireland.

Competitive disadvantage created by higher VAT

The tourism sector in Northern Ireland has grown to become a significant part of the economy. Last year, 2.5 million visitors drove an industry worth £0.8 billion, and directly employing 43,000 people. However, long-term growth may be at risk. Northern Ireland is unique in the UK in having a land border with another sovereign nation. Currently, tourism related businesses in Northern Ireland pay 20% VAT, compared to 9% VAT for equivalent businesses in the Republic of Ireland. This creates a competitive disadvantage where businesses in NI are forced to reduce prices, reducing their ability to invest, or risking losing out on business by being too expensive.

Calls for Government to investigate impact of reducing tourism VAT

EU law currently prevents member states from setting different levels of VAT for different regions. With the UK set to leave the EU, this is a power that will be repatriated to the UK. The Committee calls on the Government to investigate what impact reducing tourism VAT in Northern Ireland to compete with the Republic of Ireland would have. The tourism industry in Great Britain does not face the same form of competition and the Government must now consider if a one-size-fits-all policy is any longer appropriate.

Air Passenger Duty

Similar concerns exist over the impact of Air Passenger Duty on the competitiveness of Northern Ireland's airports. There is compelling evidence that Northern Ireland's tourism industry is missing out on significant levels of business because the region's airports find it increasingly difficult to obtain crucial new routes. With two million passengers a year travelling to Northern Ireland via Dublin Airport, the UK's aviation tax system places Northern Ireland at a significant competitive disadvantage.

Proposals to remove Air Passenger Duty for Northern Ireland would entail a direct cost that is likely to be offset by related benefits. Removing APD would encourage airlines to open new routes, increasing tourism and business links, boosting the economy. The Government and the Northern Ireland Executive should re-examine the economic case for abolishing APD on flights to and from Northern Ireland, liaising fully with the air travel industry to ensure that economic assumptions are accurate, and reflect the reality of the growing dominance of Dublin Airport on the island of Ireland. The Executive should additionally seek the full devolution of APD, so that the decision and cost implications reside where they will be most be felt.

Barriers to growth

Chair of the Committee, Laurence Robertson commented:

"The tourism industry in Northern Ireland has undoubtedly had some great successes in recent years, and we are optimistic for the future, notwithstanding the current political situation following the elections. The attraction of world renowned sites of natural beauty alongside new attractions, most notably Titanic Belfast, has established tourism as one of the pillars of our economy.
However, in spite of the quality of the tourism product Northern Ireland is able to offer, there are barriers to growth. Levels of VAT and Air Passenger Duty are making businesses less competitive than their equivalents in the Republic of Ireland. We are calling on the UK Government to examine options for reducing these tax burdens on tourism and creating the right environment for the sector to flourish."

Further information

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