Last month, the Department for Culture, Media and Sport (DCMS) announced it was cutting VisitBritain's funding by 18% over the next three years.
The tourism agency claims the decision will prevent it running any advertising in the years up to London 2012. This has caused widespread outrage in the tourism industry, as many believe that the estimated £2.1bn net economic benefit of staging the Games will be impossible to achieve if the agency cannot market the country abroad.
VisitBritain has a budget of £49.6m, which is split between its international operations (£35.2m) and its domestic arm, Enjoy England (£14.4m). VisitWales, VisitScotland and the Northern Ireland Tourist Board are funded separately and their budgets will not suffer.
Before the DCMS' announcement, VisitBritain had requested an extra £20m in government funding in the years leading up to the Games, which would have been matched by the private sector. 'This would have been spent on a global TV campaign on the same scale as the activity run after 11 September 2001,' says VisitBritain's strategy and communications director, Sandie Dawe.
An extra £20m from the government, matched by the tourism sector, funded the tourist board's last TV campaign. Using the strapline 'Only in Britain. Only in 2002', it aimed to market the country after the foot-and-mouth crisis and terrorist attacks in the US. The campaign, which included TV ads, targeted seven countries and generated £500m in expenditure and 1m visitors.
As a consequence of the budget cut, VisitBritain says it will be able to invest only in PR and digital marketing leading up to the Olympics, which is unlikely to have the same impact.
VisitBritain has already relaunched its individual country websites with the aim of attracting more international visitors to Britain in the run-up to the Games. 'Twenty million people visit our websites annually, but there is a limit to how often we can reinvent ourselves online,' says Dawe, who is responsible for VisitBritain's Olympics strategy.
The cutbacks will have come as no surprise to the tourism board. In May, it was forced to consolidate its international and domestic arms, resulting in 20 redundancies, as part of a £4m cost-cutting process in anticipation of the funding review. It will have to make further cuts in areas such as research to mitigate the reduction of its budget to £40.6m by 2010/11.
'The allocation to overseas marketing hasn't risen since 1997,' says Dawe. 'This means we have not been getting our share of voice in key markets such as the US.'
In comparison, the DCMS has awarded an extra £50m to the Arts Council over the next three years. 'The government is increasing funding for our cultural institutions,' says VisitBritain chairman Christopher Rodrigues. 'But free entry to museums and galleries will not persuade tourists to come to London instead of Paris, New York or Hong Kong.'
VisitBritain claims that every £1 it invests generates £30 for the tourism industry. This contributes £85bn a year to the UK's economy.
The lack of funds could also lead to the UK losing business to rival destinations. 'We are underperforming against our international rivals,' says Richard Cope, senior travel analyst at Mintel. 'We need a big global brand campaign to compete for the Chinese, Russian and Indian markets.'
Cope warns that Britain's London-centric tourism market is forcing Britons to holiday abroad, exacerbating the need for overseas visitors. 'Hotels are becoming reliant on business travellers, stag, hen and wedding parties and stopover trade,' he says. 'We need new itineraries and iconic rebranding of our regions.'
Other industry experts agree that the UK's market positioning is causing problems for the tourism sector. 'Britain has struggled with its brand identity for years,' says one industry insider. 'We desperately need to take advantage of celebrations such as Liverpool as Europe's 2008 Capital of Culture, and to market them accordingly.'
'The Games are a unique marketing opportunity to reposition Britain as a must-see destination,' adds Guy Parsons, chief operating officer at Travelodge. 'However, it is conditional on putting financial resources behind the country's global marketing strategy.'
In May, VisitBritain appointed Team Saatchi to review the UK's brand identity in a bid to raise the country's profile (Marketing, 23 May). The new motif and strapline will be unveiled at the end of the year, but with no funds available for advertising, they may prove worthless.
The DCMS claims further funding is available through Regional Development Agencies and the Greater London Authority. The government department has also asked VisitBritain to lead a strategic review of how best to maximise its funding to market the country, which will be completed by next spring. But this may be too little too late.
VisitBritain estimates that 50%-70% of the Games' economic benefit will be accrued through tourism, with more than two-thirds of this to be delivered in the four years after the event. But these figures are likely to plummet if Britain fails to promote itself adequately in a competitive tourism market.