Hospitality sector urges Chancellor to freeze VAT at current rate to aid recovery
Hospitality bosses have called on the Treasury to introduce a permanent lower rate of VAT to aid pubs and restaurants’ Covid recovery.
The tax on pubs and restaurants rose from 5 per cent to 12.5 per cent today, following the temporary reduction introduced during the coronavirus pandemic.
The Treasury’s goal is to return the tax to the pre-pandemic 20 per cent rate next year but bosses urged the Chancellor to announce a freeze at the upcoming Budget.
Trade groups – UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping, Tourism Alliance and the Association of Leading Visitor Attractions – have warned a further increase next April risks derailing the sector’s recovery.
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.”
More than three-quarters of businesses said the reduced rate was important or crucial to viability, when surveyed by their trade associations.
Six in 10 businesses said a further hike next year was likely to lead to cutbacks and job losses. One in 10 said they feared their business could be forced to close.
However, if VAT on tourism and hospitality were to remain at 12.5 per cent, the groups suggested it would increase business turnover by an average of 8.8 per cent. Business investment could also receive an average boost of 12 per cent.
Hospitality businesses are already struggling with labour shortages with some London venues slashing opening hours or closing temporarily as they recruit more staff.