Written evidence submitted by UKHospitality
UKHospitality submission to DCMS Committee inquiry on ‘Promoting Britain abroad’
Introduction – UKH and the sector.
UKHospitality is the national trade association for the hospitality sector - providing one voice for over 750 businesses and their 90,000 venues. The range of businesses UKHospitality represents is diverse: hotels, wedding venues, pubs, restaurants, entertainment attractions, food suppliers and more. UKHospitality are submitting evidence to the DCMS Committee inquiry on ‘Promoting Britain abroad’ because a majority of our members – whether through providing dining services, accommodation or entertainment - depend on inbound tourism.
The UK tourism industry is one of the largest sectors of the UK economy. The 303,000 businesses in the sector generate £157bn for the UK economy and provide employment for 3.4m people. However, it has also been the sector of the economy most impacted by Coronavirus with VisitBritain estimating that the industry has lost £210bn in revenue over the last two years. While other sectors of the economy are fast approaching their pre-COVID output levels, forecasts undertaken by Tourism Economics for DCMS indicate that the industry will not fully recover until 2025. The Government’s Tourism Recovery Plan, launched in 2021, recognises these challenges. However, it sets out an ambition for the sector to recover a year sooner than predicted by Tourism Economics – a return to pre-COVID output levels by 2024. UKHospitality shares these aspirations, and we believe that this call for evidence provides an opportunity to communicate what support our members need to achieve this goal.
Executive summary
The COVID pandemic has had a devastating impact on the tourism industry having lost £210 billion in revenue over the past two years. However, UKHospitality believes that its members – who are a cornerstone of the tourism industry – can recover strongly if provided with the necessary support. These businesses can drive the UK’s economic recovery, provide meaningful employment in every region of the country and they can project the UK’s soft power. However, it is important that the Government implements the policies that will allow them to do this. Our submission recommends the following policies to achieve this:
These steps will communicate why tourists should be choosing to visit the UK, they will help create the workforce necessary to provide world class services and these policies will allow businesses to return to financial health. Ultimately, they will allow businesses to exemplify what makes the UK exceptional.
To re-establish the UK as a holiday destination for international travellers, businesses and Government need to do the following things:
Maintaining VAT at 12.5%
The most pressing step the Government must take is permanently retaining the current 12.5% rate of VAT. The UK is already the least competitive in terms of taxation on tourism services and products, according to the World Economic Forum, and it is the only European country other than Denmark without a (permanent) reduced VAT rate for the sector. This lower tax rate not only makes the UK better value for money and more compatible with people’s budgets, but the lower prices also encourage people to buy more goods and services. This principle is supported by VisitBritain’s findings that for every 1% increase in the cost of a holiday, the country’s tourism earnings decrease by 1.3%. As reported by the ‘Campaign to Cut Hospitality and Tourism VAT’, the Government’s own econometric model confirms that keeping VAT at 12.5% would strengthen the tourism and hospitality sector and create greater returns for the Treasury. Overall, the ‘Campaign to Cut Hospitality & Tourism VAT’ shows that a 12.5% rate would generate an additional £3.2 billion for the sector and create 85,000 FTE jobs. Maintaining the current rate of VAT at 12.5% would keep prices lower, make Britain price competitive, it will stimulate spending and allow businesses to reinvest in their services.
Investing in VisitBritain and the ‘Great’ Campaign
Moreover, VisitBritain and the ‘Great’ campaign should be provided with more funding to reach international audiences. Currently, many other countries are committing large levels of investment to attract visitors to rebuild their own inbound tourism industries. For instance, Australia has announced £250 million of marketing expenditure, and the USA has announced £185 million is to be spent on promoting the country as a tourist destination. This significant international competition will attract consumers to destinations other than the UK if we do not similarly invest in promoting our tourism industry. This is particularly important as the UK has had its reputation disproportionately affected by the pandemic with news stories of high COVID rates, the ‘UK variant’ and confusing public health advice. To make the UK the destination of choice, we need to put the UK at the forefront of prospective visitors’ minds and to make it clear what makes the UK standout from its competitors through a high-impact international advertisement campaign.
Supply Chain Disruption: Short Term Visas, EUSS Scheme and the Hospitality & Tourism Skills Board
Perhaps the most injurious news story to the UK’s reputation as a tourist destination is the ongoing supply chain issues. Foreign nationals are currently seeing repeated headlines of the UK suffering from undersupply of basic commodities and goods (e.g. fuel and food). This perpetuates the perception that the UK is a destination of crisis where holiday plans are likely to be disrupted. However, this view of the UK is not completely unfounded. Our supply chains are at breaking point and this is having a very real impact on companies being able to meet demand. 60% of businesses told us they had experienced products not turning up, 66% said there had been a reduction in product lines and 56% said there had been significant price inflation. These problems have led to a quarter of our businesses having had to cut hours, close venues, refuse bookings and turn away events. The Government must do more to rectify these shortages, which are harming Britain’s reputation and limiting sales.
There are several actions that the Government should take to resolve these supply chain issues. Although the hospitality & tourism sectors recognise that it cannot continue to be dependent on foreign labour, the Government should consider short-term visas for the sector as we transition to a higher-skilled, higher-wage domestic workforce to fill the unfilled job vacancies that are causing the disruption.
Moreover, the Government should more clearly articulate the EU Settled Status (EUSS) Scheme rules to those who have returned overseas and have a legitimate right to live and work in the UK already. They should also adjust EUSS rules further to take the impact of the pandemic into account when continuous residency is disrupted.
In the long term, the Government should support - with funding where necessary - the Hospitality & Tourism Skills Board to promote employment and skills in the sector. It is important for Government, businesses and education providers to work together to ensure a pathway into hospitality careers for young people and create a pipeline of domestic talent. Ultimately, we need to secure our supply chains, so tourists can be confident that their trips will be comfortable and not disrupted.
Future Strategy for Responding to Variants of Concern
Government has been in a difficult position in relation to Covid and international travel, but it is clear that restrictions that have been imposed have been incredibly damaging for tourism – while they are in place and on future bookings as confidence is damaged. This applies to both leisure tourism but also to business tourism – which has a wider knock-on impact on the economy.
The recent example of the discovery of the Omicron variant is a prime example. While it was understandable that Government was eager to keep the variant out of the UK this was always going to be unlikely. The restrictions put in place may have slowed the spread of the virus but is likely to have done little, ultimately, to limit its impact.
The fact that restrictions remained in place (such as pre-departure tests and day 2 testing on return) when the Omicron variant was the dominant strain in the UK made very little sense. It was causing disruption to travellers and travel businesses without curbing the spread of the virus beyond other measures that were already in place, such as promoting Lateral Flow Test Use. The approved list of testing providers, with accusations of profiteering amongst testing companies, continues to be a major concern and deterrent to international travel.
Visa Regime: ETAs, Cost Effective Five-Year Visa, ‘List of Travellers’ Scheme and the Youth Mobility Scheme
Furthermore, the Government must make our visa regime more straightforward and as attractive as competitor destinations. This should be done in four ways. Firstly, Electronic Travel Authorisations (ETAs) should be offered to high-value visitors who are of low risk, such as Chinese nationals who have their visas approved 95% of the time. This should be done because biometric visas are costly and involve a lengthy application process. We know that visitors are deterred by the visa application process with the UK’s share of the Chinese outbound market having fallen by 39% after biometric visas were introduced in 2008. By introducing ETAs for such travellers, visiting the UK would become a more attractive prospect to them, and UKVI would be free to focus its resources on vetting those who don’t meet the criteria for these ETAs. It would also cut waiting times at immigration desks, and it would save the Government around £17 million in visa processing fees. This is a crucial way of making the UK visa regime less of a barrier to travellers, which could bring in an extra £1.2 billion over two years if the scheme increased visitor numbers from India and China by just 10%.
Secondly, the Government can make the visa system less of a barrier by making the five-year visitor visa more cost effective, and they should encourage travellers to apply for this visa over the standard one. Currently, a multiple entry five-year visa costs £655. For it to be worthwhile to buy this visa over multiple standard ones in terms of price, you would have to visit the UK seven times. Very few do this. It is also far more expensive than other holiday destinations, such as Australia, where a 10-year visa only costs £550. Not only would lowering the price make the visa more attractive to visitors, but the Home Office could generate revenue by encouraging visitors to upgrade from a one-time visit visa to a five-year visa. This would make economic sense as it costs no more to process a 5-year visa compared to a standard one, so they could generate additional revenue from the larger margin. Thus, making the five-year visa more cost competitive would be a revenue generating way to encourage travellers to come to the UK.
Thirdly, whilst not strictly speaking a visa, the Government should introduce a ‘list of travellers’ scheme for student groups to save our educational travel industry. Over half of EU students do not have a passport and, since October, their national identity cards do not allow them to travel to the UK. This has led to schools going to other countries, such as Ireland and Malta, and in turn the educational travel industry is collapsing. This is catastrophic as it’s a market worth £1.2 billion - 5.5% of the UK’s total tourism earnings. We can protect this industry by allowing schools to bring students without their own travel documents to the UK under the supervision of a passport carrying teacher. This would make the country accessible to high value visitors without posing a risk to the UK’s immigration policy as school children are very unlikely to disappear into the UK’s black economy. A ‘list of travellers’ scheme would save a vital part of our tourism sector and enhance the UK’s soft power by allowing students to immerse themselves in UK life.
In addition, the Government should promote and broaden who can apply for the Youth Mobility Scheme visa. This should certainly be offered to all EU countries and others whom the UK strikes trade deals with. This would not only attract young talent to support our workforce and improve our tourism offer, it would forge a relationship between this country and these visitors. This is highly likely to make them return visitors who will continue to support the tourism industry through spending their disposable income here.
The Need for Businesses to Reinvest
Finally, businesses need to reinvest in their offerings. Businesses need to draw in visitors by recruiting more staff, investing in their premises, upgrading their current services and developing new ones. Many businesses are looking to do this: 71% report that they are using the revenue created by the lower rate of VAT to invest in their businesses. UKHospitality will be continuing to communicate this need to reinvest to make services more appealing to consumers, and the data we have received from members – as mentioned above – suggests it is being well heeded. However, the sector is still fragile from the devastating impact of COVID, and there are several long-term structural issues (e.g. staff recruitment) that are hindering businesses from creating the positive cashflow necessary for reinvestment. That is why it is crucial for Government to take the steps outlined above to create the environment in which businesses themselves can take the lead and build the sector back better.
The Importance of Recovering the Sector
It cannot be overstated how important it is for inbound tourism numbers to return to their pre-pandemic levels. UK tourism businesses have lost £210 billion over the last two years, and 12,000 hospitality venues have closed. Outbound tourism is a key revenue stream that needs to be recovered, otherwise there will inevitably be more sectoral contraction. This will mean job losses: more will join the 600,000 people who have lost their jobs in the sector and become financially insecure. It will mean reduced tax receipts: this will mean less public money for investing in the building back better agenda. It will mean contractions in the wider economy: fewer trading businesses and fewer wage earning workers means less being spent in other areas of the economy, such as retail and food suppliers. We must do all we can to revitalise our inbound tourism industry as its economic impact is felt across all sectors and regions of the country.
It is important to remember that those businesses reliant on inbound tourism are more than statistics, and their services and assets are more tangible than figures on a screen. They are the face of the ‘real economy’: they are the physical premises where people meet their needs and bind together into communities. They are where people go to eat, where people go to celebrate big moments in their lives, where people do business, where people go to socialise, and they are where people go to enjoy themselves. These are some, but not all, of the many key roles these businesses play in their local communities. Without the revenue from inbound tourism, many venues will not be able to continue to provide these crucial services, and they certainly will not be able to improve them.
Some might try to argue that this contraction is inevitable and there is nothing the Government can do about it – that recovering visitor numbers is a losing game. However, this does not reflect how most governments view the prospects of their own tourism sectors. For instance, France is showing a strong commitment to their tourism sector and injecting £2 billion into it. Moreover, many other international tourist destinations have seen strong recoveries. Greece was almost back to pre-pandemic levels over the summer, with 86% of the levels seen in July and August 2019. This contrasts with the UK who only managed 14.6% of the rate seen during this time in 2019. International tourism continues to have mass support from foreign governments and travellers.
To not take respond in a similar fashion would be unnecessarily conceding market share, and it would suggest that the UK no longer has the national identity and services necessary to attract consumers like other tourism destinations. Instead, the UK can continue to be in the top 4 nations for tourism, as measured by Anholt-Ipsos’ Nation Brands Index, if the Government implements the necessary steps outlined above.
The Tourism Recovery Plan was warmly welcomed. It included important policy announcements, such as the £1.3 million Destination Management Organisation (DMO) Resilience Scheme and further funding for apprenticeships. However, the plan largely focuses on domestic tourism, but this is understandable to an extent as it was shaped by the COVID-19 pandemic. The two main initiatives from the plan are £10m in vouchers from the National Lottery to visit tourism attractions and a new domestic rail pass. While these initiatives will boost domestic tourism, they will not increase inbound revenue and therefore will not generate the additional £20bn in tourism expenditure needed for the Tourism Recovery Plan targets to be met. The policy suggestions we have put forward in this submission would go a long way to close this gap and boost inbound tourism. Crucially, we welcome the ambition for the sector to return to pre-pandemic output levels a year ahead of forecasts, but our members have been clear they do not think this is possible without maintaining a 12.5% rate of VAT.
The UK’s soft power comes from its wide range of communities, identities, values and culture. Hospitality and tourism businesses are key places that these elements are embodied and can be experienced through unique offerings. This not only needs to be promoted in international press and media, but we must also work to draw people to the UK to experience it for themselves. The initiatives outlined above go a long way to do this from showcasing the UK to mass audiences through the proposed promotional campaign to fostering an emotional connection with the country by improving youth mobility through the ‘list of travellers’ scheme and Youth Mobility Scheme visas.
Hospitality & tourism businesses can and will go further in carving out what makes the UK unique and what its values are. We are doing this through our Roadmap to Net Zero, launched in partnership with the Zero Carbon Forum, and through our action plan as Disabilities and Access Ambassadors. We are also investing in our offerings and staff. These actions will make the UK an inclusive, technologically progressive and culturally rich country that others will look to. This can only be achieved by creating a policy landscape that allows businesses to reinvest.
One way the UK can capitalise on its exit from the European Union is by revising the Package Travel Regulations (PTR). Due to the poor drafting of the EU Directive, any UK accommodation business selling an added value product is deemed to be a tour operator selling a package holiday. Value-added products include a B&B or pub including tickets to a local attraction in the cost of a weekend stay, and a city hotel combining a night’s accommodation with tickets to a show. Defining accommodation providers as tour operators means they are legally responsible if something happens to the customer while visiting the other business. This is obviously a risk that few businesses are willing to take, meaning that UK consumers are missing out on being able to buy cheaper holiday products and services. A Tourism Alliance survey of 200 businesses has found that 74% of businesses would sell value-added products to consumers if they were outside the scope of the PTRs and doing so would increase their revenue by around 9%, generating over £2bn pa and creating around 40,000 jobs. Amending the definition of a “package” so that Package Travel must include travel (i.e. passage on a plane, train, boat or coach) is a very simple way of freeing value-added products from the scope of the regulations while, at the same time, maintaining the important protections they provide to people purchasing package holidays.
Another benefit from Brexit has been the drive to promote ‘Global Britain’. This is welcomed as the hospitality and tourism sector is reliant on high value visitors from markets outside the EU. This includes China and the Gulf Co-operation Council countries. It is thus warmly welcomed that Brexit has prompted Government to tailor its messaging and seek to appeal to a wider international audience.
The UK’s withdrawal from the European Union also provides an opportunity to be more flexible in our VAT. The UK could be more flexible in its VAT regime compared to the EU by having more than the three rates permitted under the VAT Directive. Under EU law, you must have a standard rate of VAT of at least 15%, and member states are free to introduce up to two reduced rates that can be applied to a limited number of products. The UK could diverge from this and have more rates than this. Whilst this would make the VAT regime more complex, it could be a way of redistributing the tax burden on different sectors and provide a mechanism for stimulating consumption of products. The UK is also now free to apply a reduced rate of VAT to more goods and services than is allowed under EU rules, such as alcoholic beverages. Again, this provides a route for lifting the tax burden on sectors and makes the price point of these products more appealing to consumers.
Furthermore, the UK’s departure from the EU allows the country to diverge from the single market’s rules on alcohol duty, which is currently being consulted on. Government has already committed to reforming the duty system, although changes are yet to come in. This allows for a more rational application of excise duty and to incentivise parts of the economy. The most prominent Government commitment is to reduce excise duty on draught beer, which incentives hospitality and tourism properties – while also rewarding more labour-intensive products. Government should use this opportunity to consider other incentives that support tourism.
There are other potential benefits from Brexit, but these remain largely unexplored and more should be done to review the regulations that have been imported from the EU acquis. For instance, it could be the case that benefits could be brought about through changes to legislation in food and drink production, but UKHospitality is not aware of any suggested changes presently, and it is not an issue that has been raised by our members. Moreover, the end of freedom of movement means we have an opportunity to improve youth mobility from other nations through the Youth Mobility Scheme visa. However, the Government has yet to extend the list of nationals that can apply for it nor have they done more to promote it. It can be said that there are possible further benefits from leaving the EU, but they have so far not been communicated or implemented in Government policy.
The biggest threat to the UK’s soft power is that tourism and hospitality businesses are not financially secure. These are the venues through which people immerse themselves in the UK. Implementing the policies that will allow them to trade and strengthen their books is not only important to keep businesses viable but, for the UK to remain at the forefront, these businesses must be financially able to reinvest. This will not only improve their current services but allow them to exemplify the kind of values consumers are looking for, such as being environmental and more inclusive. The UK’s tourism businesses can meet this challenge, remain the country’s 4th biggest export and propagate the UK’s soft power, but they need the necessary policies in place to do it.
Secondly, the UK’s unique offering is at risk of being drowned out by the international tourism campaigns of other nations as well as the negative news stories that have drawn headlines around the world. The Government needs to appropriately fund our country’s international media campaigns to highlight what a fantastic place the UK is to visit. They must also work with businesses to solve the structural issues that are causing disruption to services which is creating a negative perception of the UK.
Furthermore, the Government needs to make the UK a price competitive country to make it better value for money, so people choose to experience the UK’s society and culture over other destinations. This can be achieved by locking in VAT at 12.5%, which is the most requested measure by the sector.
Moreover, it has become more difficult for many international citizens to come to the UK, which will disincentivise travellers from visiting the UK, absorbing our way of life and exporting that to their home nations. This has happened in a number of ways, but the most tragic has been the loss of access for European schools. This has caused them to go to other destinations. It has made the UK look insular, and the country is failing to capitalise on the opportunity to leave an impression on these children at key stages in their lives.
Hospitality and tourism has the potential to elevate the UK even higher as a soft power superpower – welcoming young overseas workers, providing immersive experiences of our culture and improving the offer of the whole nation. Working collaboratively, Government and industry can achieve these goals.