Chief executives of the UK’s best loved pubs, bars, restaurants, cafés, hotels, leisure parks, nightclubs, entertainment venues, and visitor attractions have signed a letter to the Chancellor, ahead of his Budget tomorrow (27th October).
The industry leaders have called for a permanent reduced rate of VAT for hospitality and tourism, to support them to rebuild businesses and play a full part in the nation’s recovery – alongside meaningful support on business rates.
UKHospitality Chief Executive Kate Nicholls said: “Hospitality is a critical component of the UK economy, with the potential to be at the heart of the Government’s plans to Build Back Better. We can support job creation, levelling up and the road to net zero – but we need the Government to come with us on our recovery journey.
“Under current plans, VAT returns to its pre-pandemic level of 20% next April, meaning higher prices for consumers just at the time when they can least afford it. For businesses it will undoubtedly set off an inflationary spiral which will undermine wage growth, hit demand and ultimately threaten jobs.
“It will come at the exact same time as we hit a a cliff-edge of the end of business rates reliefs on outdated valuations – currently hospitality pays 10% of the rates bill for an industry that generates around 3% of GDP. On top of this we’re facing a chronic labour shortage, supply chain issues, cost inflation across the board, and rises in the National Living Wage and National Insurance Contributions.
“Fundamental reforms are therefore crucial to the industry’s survival, a key part of which will be keeping VAT at 12.5% permanently. This will allow us to circumnavigate the monumental challenges we face and enable operators and their teams to concentrate time and resources on what they do best – driving economic growth and serving their communities.
“Longer term, there is no doubt that a return to the higher rate of VAT will prevent the industry playing its full part in the Government’s levelling up agenda and in delivering its commitment to focus on good work, better skills, and higher wages. That is why it’s vital the Chancellor must keep VAT permanently at 12.5% for our sector.”
And with the news today that there will be no reduction in VAT on household energy bills in the autumn budget tomorrow Sue Rathmell, partner at MHA, a leading network of accountancy firms, said she believes this was the right decision but a permanent VAT cut for the travel and hospitality sector is still a much needed move.
“The Treasury made the right call: cutting VAT on energy bills was not the best approach. The recent increase in domestic fuel bills will be best dealt with by targeted subsidies rather than a VAT rate cut, as the government notes. In addition, if the Chancellor had cut VAT on energy, that would have been a bad message to send to the world’s leaders who will soon be arriving in the UK for COP26. We need policies that will reduce energy use not encourage it.
“However, that doesn’t mean VAT should stay as it is. The tourism and hospitality industry ought to get a VAT reduction in the upcoming budget tomorrow. The sector benefitted from a reduction in VAT over the last 15 months but is now seeing that advantage eroded, with the rate of 12.5% imposed from 1 October 2021 and a return to 20% from 1 April 2022. Lower VAT costs for hotels, restaurant and tourist centres encourage people to holiday in their own country instead of going abroad, boosting income across the whole nation and cutting down emissions from air travel.”