VisitBritain and the FHL rules

The Government’s decision to repeal the Furnished Holiday Lettings (FHL) rules have created a lot of debate both at Government level and within the industry itself. Some blamed VisitBritain for not defending the interests of self-catering holiday let providers, even though VisitBritain was not party in the initiation of the repeal. However, VisitBritain has been very much active and, in February, issued its own response to the Government’s consultation, clearly stating its position in the matter.

Background

Tourism is a major asset to the British economy, being its fifth biggest industry, third largest export earner, employing about 2.7 million people and being worth around £114bn to the UK economy every year. It is also a dynamic and growing sector, with the potential to be worth £188bn by 2018, employing 250,000 more people than today, according to a study by Deloitte in 2009.

The nature of the tourism industry is such that it offers a broad range of employment opportunities, at all levels, therefore offering opportunities for employment accessible to all and spread throughout the country.

Self Catering

Within this sector, self-catering accommodation only represents a small part, but it is nevertheless an important one, as stated by VisitBritain: “while the most familiar image of the UK accommodation sector may be that of the hotel, guest house or bed & breakfast establishment, it is important to recognise that the sector is not homogenous, and that other operations, including self-catering cottages and flats, holiday parks, caravan sites and campsites all play an important role in creating the mix of alternatives that characterises the UK industry.”

Self-catering accommodation are particularly attractive to families, according to VisitBritain’s research, mainly because of the flexibility and privacy they offer, but also because they tend to be more affordable. For instance, hotel booking website Hotels.com reported that the average price per room paid between January and June 2009 was £83, which would mean that a family of, say, four would have to occupy two rooms and spend around £1200 for a week (without counting the cost of meals).

This is supported by Kurt Janson, policy director at the Tourism Alliance, who told Accommodation Know-How that the repeal of the FHL rules “will be detrimental to families because of the way the education system is structured. There are only a few weeks a year that families can spend time together. If there is a reduced number of accommodation during those weeks, then it is not as if they can go at some other time when the self-catering accommodation are less busy, because there is no such time. And so they’ll go abroad.”

Therefore, any reduction in the number of self-catering accommodation would result in shorter holidays taken by individuals and families with limited income, which would in turn impact negatively on the surrounding pubs, restaurants, cafes, visitor attractions and sites of cultural or historical interest.

Information

In its report, VisitBritain lamented that the information available to HMRC to make its Impact Assessment was based on assumptions rather than hard fact, which was made clear when VisitBritain monitored answers to Parliamentary Questions. For instance, it was stated that HMRC does not record the number of companies with income from furnished holiday lettings and they estimate that there are approximately 500 such companies, to which should be added the 60,000 individuals that declared income from furnished holiday lettings to the HMRC in 2007-08 (the last full year for which the information was available).

HMRC also seems unaware of the investment required to run a self-catering accommodation, which often goes above and beyond that incurred by residential lets, particularly in view of the stringent requirements that have to be met for the Quality Assessment scheme. VisitBritain stated in its report that “the scale and extent of equipment provided in a contemporary self-catering property generally surpasses that provided in a hotel or bed & breakfast, making the duties incumbent on the cottage owner extremely onerous.”

Finally, VisitBritain fails to understand the foundation for the Government’s reasoning behind its decision to repeal the FHL Rules. The idea for a repeal first came to light when the European Court required the UK Government to either extend the relief offered by the rules to British citizens with property overseas, or to not extend it to anyone. The Government decided to withdraw the relief, claiming that providing it to the owners of overseas property would result in an outflow of visitors. However, both VisitBritain and the Tourism Alliance say there is no evidence of this.

Negative impact

The likely impact of the repeal of the FHL rules is that Britain’s competitiveness will be further reduced by lowering the availability of affordable accommodation for visitors (the UK already rates 127th out of 130 countries in terms of price competitiveness, according to an assessment by the World Economic Forum and the World Travel and Tourism Council). Also, France, for instance, has a tax system in place that clearly favours self-catering accommodation operators by providing them with a rebate of between 50% and 71% depending on their trading conditions and income.

The impact is also likely to be greater than anticipated and not just limited to self-catering operators. Martin Sach, chief executive of the English Association of Self Catering Operators (EASCO), told Accommodation Know-How that “in the country, there are a lot of businesses that depend on self-catering accommodation and that would suffer if their number was to be reduced. And it is not just the classic tourist attractions, but any kind of business that supplies to tourists, including supermarkets.”

The real impact of the repeal of the FHL rules is difficult to quantify, and, according to Sach, it will depend on individual reactions. But one thing that will happen, according to him, is that “the sector will shrink as people retire and new ones don’t come in because the tax regime is not favourable anymore.”

Conclusion

What VisitBritain proposes as a possible solution would be to increase the threshold for eligibility criteria for the FHL rules by requiring operators to achieve occupancy for 15 weeks per annum. Their argument is that due to the British season being longer than elsewhere – as the country is not as sun- and warmth-dependent as, say, Spain – serious self-catering operators would have no problem in reaching this minimum of 15 weeks’ occupancy. This would also alleviate the Government’s fears that British citizens who own property abroad would benefit from it and thus draw visitors away from the UK, because the seasonality of the country where they own their property means they would most likely not reach this minimum requirement.

Both EASCO and the Tourism Alliance support this condition, with Janson saying that according to evidence they submitted to the HMRC, “If we increase the threshold to 15 weeks a year, 75% of businesses will still be eligible for FHL relief and 85% of British citizens who own a property abroad would not.”

Failing this, VisitBritain requests that the Government put on hold its decision to repeal the FHL rules in April this year in order to more thoroughly study its impact on the sector as a whole and that a trial of one or two years of this increased eligibility criteria be launched to evaluate its effectiveness.

In conclusion, VisitBritain said that “to seek to implement the changes from April 2010 would, in our view, be to jeopardise much of the progress UK tourism has made in recent years, and to undermine the international competitiveness of the industry.”