Calls for VAT rate reduction for hospitality to be extended or made permanent

Tanwen Dawn-Hiscox

Tanwen Dawn-Hiscox

Deputy Editor

Hospitality businesses and trade bodies have called for the VAT rate reduction  to either be extended past the April 2022 deadline or made permanent, as the industry faces ongoing price rises, staffing issues and difficulties getting produce.

Trade bodies including UK Hospitality, the British Beer and Pub Association and the Tourism Alliance have called for a permanent extension of the lower rates, which they say will safeguard their future, protect jobs and to accelerate the UK’s economic recovery. 

Under the Treasury's current plans, hospitality and tourism VAT rises from five percent to 12.5 percent from today, with plans to return to its pre-pandemic level of 20 percent in April 2022.

The consortium of trade bodies have argued that should the rates be kept at 12.5 percent, business turnover would increase by an average of 8.8 percent, in turn boosting business investment by an average of 12 percent.

The elements of a survey conducted via the trade associations' members found that these gains would predominantly be used to reinvest in businesses, keeping prices affordable for customers and settling debts with suppliers and creditors.

On the flipside, sixty percent of surveyed businesses said a return to 20 percent would lead to cutbacks and job losses, and ten percent of them said the hike could even lead them to shut up shop forever.

In a joint statement, the trade bodies said: “Businesses are at a perilous stage of their recovery after what’s been a devastating 18 months. Costs are increasing and there are numerous operational challenges for them to deal with, specifically around labour and product supply. A reduction in VAT has helped many of our businesses survive to this point and was most welcome.

"However, the return of VAT to its pre-pandemic level next year would curtail investment, restrict growth, set back our tourism recovery and risk yet more painful job losses. We’re now calling on the chancellor to commit to introducing a permanent 12.5 percent rate of VAT in his upcoming Budget, later this month.

"This will help protect jobs and continue the support for our hospitality and tourism businesses which contribute hugely to the nation’s economic and social well-being.”

 

As for businesses having to make the tough decision of whether to reflect the hike in prices or not, some, like London chef and restaurateur Elizabeth Haigh, have said they would be "Absorbing it like a bitter pill it is," while others, like David Moore, founder of Michelin-starred Pied à Terre, told the BBC that he was left with no choice but to increase prices.

"It just does not feel like life is back to anywhere near like normal," he said, having to deal with "so many price rises across the board. The utilities are horrendous. The VAT [rise] is not something I can absorb. Every single supplier has increased prices.

"It's not just vegetables, or just meat, everything is more expensive than it was two years ago."

Not only that, but he said that his restaurant is also currently "massively understaffed," meaning table numbers have to be reduced at peak times.

Meanwhile, Night Time Economy Adviser for Manchester Sacha Lord, who successfully challenged the government's "substantial meal" rule set out in its Covid-19 winter plan last year is leading a campaign to extend the VAT reduction for another three years.

"It will take another three years at least to recover," he said, and should the rates increase in April 2022 as set out by the Chancellor, "I fear that if you do that and pull the rug, it's too soon and we will see many more businesses close." 

Meanwhile, Wonky Table campaigners have started a petition calling for an indefinite extension of the VAT cuts, with the creation of a 12.5 percent Tourism Tax specifically for the Hospitality and Tourism sectors. 

An extension of any nature seems unlikely at this stage, however, as a treasury spokesman said the government had "always been clear" that the lowered rates were a "temporary measure to support businesses as they recover from the pandemic."

 "The hospitality sector has benefited from extensive support throughout the pandemic through our £400bn Plan for Jobs, with the furlough scheme, grants, tax cuts and deferrals," he added.

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Tanwen Dawn-Hiscox

Tanwen Dawn-Hiscox

Deputy Editor 1st October 2021

Calls for VAT rate reduction for hospitality to be extended or made permanent