Treasury claws back £2.5m aid for tourism industry

As British tourism continues to suffer from the aftermath of foot and mouth, the Treasury is siphoning off £2.5m from the Government's own emergency rescue package.

As British tourism continues to suffer from the aftermath of foot and mouth, the Treasury is siphoning off £2.5m from the Government's own emergency rescue package.

The campaign to bring back foreign visitors after the disastrous impact of the epidemic has been undermined by a ruling that a £14.2m grant to the British Tourist Authority is subject to 17.5 per cent VAT.

At the same time, an Independent on Sunday survey of the bed and breakfast industry, one of the mainstays of rural tourism, shows that the industry is yet to recover, registering close to a 50 per cent drop in bookings.

According to the survey of 255 B&Bs across the UK, bookings are down by around 45 per cent compared to last year. Wales has suffered the heaviest losses with a 60 per cent decrease but even relatively foot and mouth-free areas such as Cornwall have seen a 33 per cent drop in bookings.

The tourism industry, facing total losses of £5bn this year, is only now beginning to pick up business. The B&B trade believes British people are already choosing to take their holidays at home and last week Tony Blair announced he would be taking part of his summer break in Britain.

But foreigners are just not coming. The latest figures show numbers of foreign tourists are about 20 per cent down. Yet the BTA which was given a grant to promote British tourism abroad has now discovered it will have to pay back some £2.5m in VAT.

As Bernard Donoghue, of the BTA put it: "It will come as a surprise to many people in the industry." Bob Cotton of the British Hospitality Association said: "To find the Government is calling back 17.5 per cent defies belief. I am more than furious. The industry has been misled."

And Richard Tobias of the British Incoming Tour Operators Association called it "an extraordinary state of affairs".

But a Treasury spokesman said that VAT was always payable on state aid packages because the tax system did not make any exceptions, even for the Government.

The survey of B&Bs identifies the lack of foreign visitors – especially Americans – as the biggest worry facing the trade. And while weekend breaks are beginning to pick up, rooms are staying vacant during the week.

"The crisis for the farming industry caused by foot and mouth is being cleared up," said John Walker, of Cumbria Crisis Alliance, representing tourism businesses in the area. "But our crisis is just beginning. How are we going to get through the winter – nobody seems to care. Five businesses in the town have already closed down. "

Adam Southwell finally re-opened the Prince Hall Hotel in the heart of Dartmoor last week after four months' forced closure because of foot and mouth on surrounding farms.

Cutting his prices by a quarter has brought in about £10,000 worth of bookings, but the hotelier estimates that he has missed out on £120,000 of business since early March.

"We had to lay off our 10 staff, but now they are all back," he said. "We hope that by the beginning of next year we will have returned to something like normal."