An analysis of Isle of Man Government price data shows that the United Kingdom’s Value Added Tax (VAT) cut on hospitality, holiday accommodation and attractions led to real benefits for Manx consumers in the second half of 2020. Manx data shows that the price index of restaurants and hotels fell over 4% at the same time as the VAT cut took effect.
“Cutting the VAT on restaurants and hotels was good for the people of the Isle of Man. Manx consumers benefited from a cheaper night out, or a cheaper staycation, and Manx businesses benefited from lower taxes.”Michael Josem of the Manx TaxPayers’ Alliance
In the chart above, the price index is calculated with January 2020 valued at 100.
- On 8 July 2020, the government of the United Kingdom announced that it would introduce a temporary 5% reduced rate of VAT for certain supplies of hospitality, hotel and holiday accommodation, and admissions to certain attractions.
- In July 2020, the price index of restaurants and hotels in the Isle of Man fell by 4.47% compared to June 2020.
How do we know this price drop is connected to the VAT change?
We can surmise that prices dropping in the restaurants and hotel sector is connected with the tax cut in the restaurant and hotel sector because the consumer price index at the time otherwise remained roughly steady. There was, in fact, a small increase in consumer prices overall, at the same time as the prices of restaurants and hotels was decreasing.
The first 2020 Isle of Man lockdown ended a month before this change of restaurant and hotel prices.
In the chart above, the price indexes are calculated with January 2020 valued at 100.
Was the full tax cut passed on to consumers? Did hospitality businesses retain some of the tax cuts?
It is difficult to say, especially with the disruption of the Coronavirus pandemic. Many businesses in this sector will have suffered significant reductions in turnover due to various restrictions related to the Coronavirus pandemic and some endured a combination of lower income and higher costs. It is likely that some businesses reduced prices by the full tax cut, some by part of the tax cut, and some made no price changes.
In addition, the “Restaurant and hotels” sector of the Manx economy do not correlate perfectly with the VAT changes, and a reduced rate of 5% VAT was already charged on on accommodation provided by hotels in the Isle of Man.
What is the source for the data?
The underlying source is the inflation data released by the Isle of Man Government’s Economic Affairs Division. The data is publicly available online here.
How are the price indexes calculated?
Price data is recorded by the Isle of Man Government as part of their routine measurements to evaluate the consumer prices index (CPI). The CPI is the leading measurement of inflation on the Isle of Man, and includes price measurements across a dozen economic categories, including restaurants and hotels.
The Isle of Man Government explains how the price indexes are calculated:
“Currently in the Isle of Man, around 1,000 prices are collected for some 500 items [across the economy]. These prices are collected by the staff of Economic Affairs Division by a combination of: mailing out forms to be filled in by participating businesses, personal visits to premises, telephone contacts, and browsing online shopping sites. Approximately one hundred retailers and other organisations help by either supplying price information or allowing access to their premises.”
How can I check on the calculations?
The spreadsheet, including all the calculations, is available online here.
Can I re-use this data or analysis?
2020 Hospitality VAT Cut Analysis by Manx TaxPayers’ Alliance is licensed under Attribution 4.0 International