Other EU countries have created special tax systems featuring low rates of tax on tourist essentials including accommodation, food and cultural services such as admission to theatres, cinemas, museums and art galleries.

Portugal applies a rate of 5% to these services while the Netherlands has a 6% rate, Spain 7%, Austria 10% and Sweden 12%. The UK applies its VAT rate of 17.5% across the board.

'Most EU countries provide wide-ranging support for their tourist industries, including reducing tax rates on holiday essentials such as hotel accommodation, restaurants and cultural services. If the British government is serious about boosting this country's tourism, then it must act now by either lowering VAT or reducing the categories to which it is applied,' said John Davison, head of indirect tax at Baker Tilly.

It's no surprise that tourists don't want to holiday in the UK. A European family of four can quite easily add on at least another £200 to a two-week holiday when they come to Britain. There is no escape - most low cost items like ice-creams, postcards, snacks and soft drinks incorporate our hefty VAT charge of 17.5%.'

Ireland applies a lower tax rate of 12.5% to accommodation and food, as well as tour guide services and hiring cars, boats, caravans and mobile homes Davison said.

'In the long term the impact of VAT could effect that country in the same way that BSE and foot and mouth have done. The government could boost morale as well as demonstrating its long-term commitment to the tourist industry by taking action now,' he added.