Hospitality leaders explain why VAT is the problem
Rachel Reeves told hospitality leaders this week that the government recognised the pressure facing the sector, as operators continued to push for a VAT cut they say is now central to survival, growth and investment.
In a pre-recorded virtual message played out at the UKHospitality Summer Conference in London, the Chancellor of the Exchequer said she knew it had been “a genuinely hard period” for pubs, restaurants, hotels and venues.
Rachel said: “When people feel confident in the economy, you are often first to welcome them through the doors.
“And it's my mission to drive that confidence up, starting with the Great British Summer Savings this summer.”
She pointed to measures including permanent lower business rates for retail, hospitality and leisure, a cut to draft duty, reform of the apprenticeship levy and a summer reduction in VAT for children’s meals.
Rachel said: “Hospitality employs 3.6 million people across the country.
“It's woven into the fabric of our high streets, our seaside towns, our city centres.
“When hospitality thrives, Britain thrives.
“And with a government that is committed to growth, I believe the best days are ahead of us.”
But across the conference, industry leaders made clear that while hospitality welcomed recognition from government, the major issue remained VAT.
The discussion came as VAT’s The Problem, the campaign fronted by Tom Kerridge calling for hospitality VAT to be cut from 20% to 10%, approached 200,000 signatures, a milestone it has now reached.
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The campaign has gathered support across hospitality, with operators arguing that a lower VAT rate would bring the UK closer to parts of Europe, ease pressure on businesses and allow the sector to invest, employ and grow.
Nick Mackenzie: ‘The taxation regime is unfair’
Nick Mackenzie, chief executive of Greene King, said the fact VAT was being discussed so prominently was significant in itself.
Nick said: “First of all, it is I think fantastic that we are sitting there actually talking about VAT in the way we are.
“If you'd have asked me six months ago if this is what I'd be talking about it, I probably would have said no.
“I think it is great, particularly with the drive that Tom's doing to the campaign and the trade bodies supporting it.
“I think it is the right time to be having the conversation.
“Why hospitality versus other sectors? And I think there's three key things.
“One is I think the taxation regime is unfair on our sector. It's inequitable, whether you're talking about duty, whether you're talking about National Insurance, whether you're talking about VAT, it's inequitable.”
“This industry can create growth, can create jobs, and particularly create jobs for young people like no other industry can do.
“So why wouldn't you back this industry to do that?
“I think what is becoming increasingly understood by governments, is the social value that our industry can bring, whether that is combating loneliness, whether that is social cohesion with pubs, whether that is creating jobs for people who wouldn't normally be able to get a job.
“Whether you've come out of prison or you're homeless, we can create meaningful jobs and careers for people.”
In a later discussion, Nick warned that increased costs were already forcing operators to make difficult choices.
“We choose to support bringing prison leavers into our business. We've aiming to get to 500 of those,” he explained.
“But we could choose not to do that because it costs us money to do it.”
He added: “There are three closures per day in our industry and that can't be right.
“And if you lose those social hubs, you lose people giving jobs to people who can't get them elsewhere, then A, you lose tax revenue, B, you lose that social cohesion, and C, you lose the growth.”
Steve Cassidy: ‘It is extremely uncompetitive’
Steve Cassidy, senior vice president UK and Ireland at Hilton, said VAT had become the issue capable of uniting different parts of hospitality.
Steve said: “We may represent subtly different elements of the hospitality sector, but talking as one voice is crucially important.
“It's extremely uncompetitive. When I look across the international landscape and you see the different treatment of government in markets, particularly within Europe, where we're competing for visitors, it's a different conversation between the hospitality sector and their governments.”
He pointed to Ireland as an example of a more supportive approach.
Steve said: “There is a dialogue there between industry and government that we can aspire for.
“And I think this is a platform for doing that.”
Steve added that while there were multiple factors behind pricing, VAT was part of the wider pressure on operators.
Steve said: “Ultimately, the economic success of our industry, the social success of our industry is born out by how sustainable the profit and loss of the business is.
“And in the last few years in particular, as many commentators have highlighted, we've seen national living wage increases, probably rightly so, to a material extent, energy costs inflating to a material extent, that supply chain as a consequence increasing.
“So you're seeing top line growth, but the margin pressure is significant and VAT plays a massive role in that.”
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Gemma Glasson: ‘We make 20p’
Gemma Glasson, chief executive of Wahaca, said hospitality’s value to the UK went beyond economics.
Gemma said the UK had a strong culture of communities forming around pubs, high streets and villages, adding that hospitality contributed to “an overall sense of conviviality and a sort of coming together.”
She said: “I really don't understand why this industry isn't raised up more in terms of its social value.”
Gemma said the impact of hospitality could be seen across the country, from major cities to small villages.
She added: “When you look at the breadth of impact that hospitality has, it's all through the UK. Big cities, small cities, villages, tiny hamlets that have a single pub.
“There is so much value in that.”
On VAT, Gemma gave a specific example from Wahaca’s menu.
She said: “I went through with my FD and we're looking at a pork belly taco.
“So it's £7.95 and looking at how much we take, Wahaca, with all the kind of innovation and love and focus that goes into cooking that batch versus actually what we pay in tax.
“We make 20p.
“The tax off the back of that taco is 10 times more than that.”
Gemma said that imbalance was frustrating at a time when operators were trying to keep investing in quality and innovation.
She said: “It feels crazy in an environment where actually we want to keep innovating.
“We want to keep bringing great quality produce.”
“We have 14 restaurants. We're very small in the scheme of things, but we buy organic from Riverford Organic for our veg. We get our crab from Dorset.
“And we can create something that actually is very accessible from a price perspective.
“I think that is a really wonderful part of the UK system.”
Kevin Styles: ‘The industry has been saddle-backed beyond belief’
Kevin Styles, chief executive of The Pig Hotels, gave his perspective from a hotelier side of the sector.
Kevin said: “The industry has been saddle-backed beyond belief.
“The way investment looks at the UK, and the way the Americans look at the UK, and the kind of multiples that they pay over there versus the multiples they pay here, they're chalk and cheese.”
Julie Fawcett: ‘This industry has got behind one voice’
Julie Fawcett, chair of House of Gods Hotel Group, said hotels had perhaps been quieter than pubs and restaurants on VAT, but that the issue was still critical.
Julie said the pressure was felt differently across rooms and food and beverage.
She said: “We've got equal turnover from those two parts of the business, but we haven't got equal profits.
“And so it hurts a lot more on the F&B side and the restaurant side of things than it is on the room side of things.”
She added: “I find it really interesting how the industry has consolidated around this point, because the cost problem is everywhere.
“The cost problem is in rates and the labour impact, we've all had a 10% hit to our labour impacts a year or so ago.
“The cost is in energy costs, it's in the wage inflation, it's absolutely everywhere and we could have fought on all of those fronts.
“But what I think is fantastic, is that the industry has got behind one voice that's been championed by somebody and it is making momentum.
“Political capital has been generated by getting behind the issue, by using that a point of focus.
“And really all we're getting back is what we gave away in the National Insurance hit, honestly.”
Sarah Willingham: ‘We can’t breathe’
Sarah Willingham, chief executive and founder of multi-site bar operator Nightcap, said the argument for a VAT cut was a “complete no-brainer.”
“They'll actually start to see some post-tax profits where they'll actually get some money from our sector,” she said.
“We'll employ more people, they'll get more NI, etcetera. It is a complete no-brainer.”
Sarah said the government needed to move beyond words on growth and act.
She said: “They need to unlock it and they need to make it easier for us instead of constraining and putting bureaucracy and tax and making it difficult for us to operate.
“We're strangled at the moment, we can't breathe.
“And they need to unlock that and allow growth.”
She added: “The Chancellor said they are pro-growth, but they are not. A government that is pro-growth will unlock the hospitality industry.
“And if you unlock us, we will employ more people, we will produce the profits and the economy will thrive.”
A single message on VAT
The message across the UKHospitality Summer Conference was consistent: hospitality operators are not asking for special treatment, but for a tax structure they believe reflects the sector’s economic and social value, and brings it in line with other countries across Europe.
From pubs and hotels to restaurant groups and late-night operators, the argument was framed around jobs, investment, high streets, communities, tourism and the supply chain.
With VAT’s The Problem now past 200,000 signatures, industry leaders are hoping the campaign can turn that shared frustration into a single, visible call for government action.
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