No VAT cuts without proper pay

Northern Ireland’s hospitality industry has benefited greatly from tax subsidies and the allocation of public funding. It is time for that to be reciprocated with improved wages, writes 
John O’Farrell of the Irish Congress of Trade Unions.

Last month, the Irish Congress of Trade Unions called upon the Irish Minister for Finance to reverse the 2011 tax cut for hotels and restaurants in that jurisdiction and to re-apply the fairer rate of 13.5 per cent on these highly profitable businesses. The Minister’s own review subsequently concurred.

ICTU have published a guide to the issue, arguing that there are nine reasons why the tax rate should revert to the 2011 level, starting with the fact that the sector has completely recovered since the economic crash which prompted the original campaign by hoteliers and restauranteurs for a cut which was designed to last no more than three years.

“Seven years later, the rationale for this cut is as stale as last year’s Easter lunch. All that is left is a handout by taxpayers to highly profitable businesses with a well-deserved reputation for high prices for customers and low wages for staff,” said the ICTU researcher Ger Gibbons.

The scale of these profits and their distribution was outlined by SIPTU economist Michael Taft: “No wonder employer groups in the hospitality sector want to maintain the low VAT rate (which has cost the state €2.6 billion to date). Since 2011, profits have increased by 172 per cent; wages have risen by only 10 per cent. A massive public subsidy to private profit.”

It is clear after seven years that this tax subsidy is unnecessary in a sector which is booming and whose larger firms are doing best of all; where prices are still among the highest in the EU; where workers are three times more likely to subsist on the minimum wage than the average Irish worker; where the alleged impact on employment has been greatly exaggerated and finally, where essential tax revenue is diverted from essential services like housing or childcare.

Despite the justified concerns about the likely impact of Brexit on tourism, there is little evidence that potential visitors are influenced by VAT rates. If the hospitality sector is concerned about the impact of Brexit on tourism, its energies would be better deployed arguing that our uncontrolled exit out of the EU is making it increasingly impossible to import the foreign labour the sector depends upon – which brings us to wages.

The reason why EU workers in general are coming here in fewer numbers is connected to uncertainty (and, yes, inflated hostility since the referendum), but a more significant reason is the devaluation of sterling against the euro. It means that the marginal advantage of a low-paid job in Northern Ireland is no longer better than a low-paid job in Italy or Poland or Greece, which highlights the inconvenient fact that local workers are not keen on a ‘career’ in an industry with the highest proportion (75 per cent) of staff on less than the living wage.

“Whenever lefties make a spending demand the stock riposte is ‘OK, but how will we afford it?’. Two can play at that game. If the hospitality lobby want a cut in VAT, then let them first demonstrate good faith through decent pay, for a start.”

Those wages are in turn subsidised by the State which picks up the slack with Housing Benefits and Tax Credits (and the monstrously complicated system of Universal Credit).

That’s not the only hand-out from the Northern Ireland taxpayer to the hospitality sector. The website Tourismni.com boasts of a range of goodies: “Financial assistance may be available to established businesses or to help develop new accommodation businesses. Invest NI may also offer a wide range of advice and guidance to tourism accommodation businesses including: IT and e-business issues; Training; Design and marketing; Market research information; Energy and water efficiencies.”

There are also funding opportunities from NI Small Business Loan Fund, Arts Council NI, Heritage Lottery, and so on.

The largest tourist attractions we have are benefiting from grants from EU Structural Funds and Social Funds. The film studio in the Titanic quarter where Game of Thrones is CGI’ed into being would not exist without farsighted investment from public funds, and nor would the biggest single tourist attraction we have, the Titanic Experience. The total cost to develop it was £76.9 million. The funders were: Department of Enterprise (DETI) – NI Tourist Board £36.95 million; Belfast Harbour Commissioners £13.6 million; Belfast City Council £10 million; Titanic Quarter Ltd (TQL) £16.35 million.

Whenever lefties make a spending demand, say for more social housing, the stock riposte is “OK, but how will we afford it?”. Public sector pay increases, compressed for years, are held back with the moral blackmail of “OK, but you will have to find the money in existing budgets, which means cuts to services…”

Two can play at that game. If the hospitality lobby want a cut in VAT, then let them first demonstrate good faith through decent pay, for a start.

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