Spain’s record tourism figures for 2025 have not translated into a comparable surge in Middle Eastern visitor numbers. Official data from Turespaña shows a 12 per cent increase in overall international arrivals year on year, with British tourists accounting for the largest share at 28 million. However, arrivals from Gulf Cooperation Council states rose by just 2.3 per cent, a stagnation that industry analysts attribute to visa barriers and lack of direct air routes.
The British tourism sector, meanwhile, is intensifying its call for fiscal reform. UKHospitality, the trade body representing hotels, restaurants and bars, has released a report arguing that the current 20 per cent VAT rate on accommodation and dining is the highest in the G7 outside Japan. The report claims that a reduction to 15 per cent, as implemented temporarily during the 2020 pandemic, would generate an additional £12 billion in investment and create 140,000 jobs within five years.
Kate Nicholls, chief executive of UKHospitality, stated: “The OECD average for tourism VAT is around 10 per cent. Our members compete with Madrid, Paris and Dubai, all of which operate lower rates. The Treasury’s reluctance to reform is directly costing us market share.” The call aligns with a broader business campaign ahead of the autumn budget. The Confederation of British Industry has separately advocated for a cut in employer national insurance contributions to stimulate hiring.
Analysts caution that the Treasury, under Chancellor Rachel Reeves, faces competing pressures. Inflation has fallen to 2.8 per cent, but public borrowing remains at 4.5 per cent of GDP. Any tax reduction would require offsetting cuts or increased revenue elsewhere. Economists at the Institute for Fiscal Studies have warned against piecemeal sector relief without a comprehensive strategy.
The Spain data further underscores the competitive dynamics. The Spanish government has maintained a reduced VAT rate of 10 per cent for tourism services since 2012, and investment in Middle Eastern marketing has been limited. Meanwhile, the United Arab Emirates has launched a “virtual work” visa for remote professionals, attracting British digital nomads who might otherwise holiday in Spain.
For British hospitality, the immediate challenge is to recapture domestic spending. Inbound tourism from the US and Asia has recovered to pre-pandemic levels, but domestic visitor spending remains 8 per cent below 2019 figures. The sector argues that a tax cut would lower prices for British families and reduce incentives for “staycation” inflation.
The Treasury has not commented on the report. A spokesperson reiterated the government’s commitment to “a competitive business environment while maintaining fiscal responsibility.” No decision on VAT changes is expected before the November Budget.
The juxtaposition of Spain’s resilience and the Middle East’s lukewarm performance offers a cautionary tale. Soft power, as measured by tourist flows, is increasingly tethered to operational factors: visa ease, tax burden and connectivity. For the UK, the path to recovery may depend on how seriously ministers take the sector’s warning that the current model is unsustainable.
