Rishi Sunak refuses plea to keep VAT at 12.5% for hospitality


Chancellor Rishi Sunak has ignored pleas by the hospitality industry to freeze VAT at 12.5% in his Spring statement. UKHospitality the, Scottish Hospitality Group, the British Beer and Pub Association and other industry bodies had urged the Chancellor not to return to 20% VAT to allow the sector to recover.

Following the Chancellor’s statement yesterday UKH warned that ending the 12.5% rate for hospitality would jeopardise jobs and restrict the sector’s efforts to stifle price rises for consumers, and its ability to lead the UK’s post-pandemic economic recovery. They said it was a “massive missed opportunity.”

UKHospitality Chief Executive Kate Nicholls said, “This is a real setback for thousands of UK hospitality businesses still suffering the devastating effects of Covid, and facing a tidal wave of rising costs. For many businesses, the removal of the lifeline of a lower rate of VAT might prove fatal. For a heavily, disproportionately taxed sector a return to 20% dashes the hopes that many businesses could begin to recoup some of the losses of the last two years.

“Operators in the sector – large and small – have several hurdles to clear on the road to recovery: huge accumulated debts; unprecedented rising costs for energy and raw goods; a chronic shortage of staff; and a fundamentally unfair and crippling business rates regime we’re desperate to see reformed.

“Locking in VAT at 12.5% would have given hospitality businesses a major boost, and helped the sector in its ambition to lead the UK back to post-Covid prosperity. As it is, thousands of jobs could be lost, the UK will remain uncompetitive versus international rivals, and already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation.

Stephen Montgomery spokesperson for the Scottish Hospitality Group said, “It was a missed opportunity by the UK Government to help the hardest hit sector of the pandemic start its recovery. This will now put many small to medium-sized businesses in a precarious position with no other alternative but to increase prices.”

There were also some positive elements of the Chancellor’s statement, Nicholls said, “The reform of the Apprenticeship Levy, to focus on improving productivity, is something on which we have lobbied Government for five years or more and will be widely welcomed by our sector. Additionally, the generous increase in the NIC threshold for employees is a very positive move and will boost disposable income, although extending that measure to employers would help hospitality businesses to recruit and retain talent.

“In short, the longer-term measures in the Chancellor’s statement will be positive for those businesses equipped to survive the coming months. However, the opportunity – primarily through retaining VAT at 12.5% – to help more vulnerable hospitality businesses navigate their way through to the autumn has sadly been missed.”

Emma McClarkin, Chief Executive of the British Beer and Pub Association said, “We are very disappointed that the Chancellor decided not to extend the 12.5% rate of VAT for hospitality. The sector remains on a knife-edge as it emerges from the pandemic and the impact of the recent energy crisis and invasion of Ukraine has ensured the turbulent times will continue for pubs and brewers just as we had hoped to build the road to recovery. The coming months could be some of the hardest yet for our pubs and brewers*.

“We welcome the Chancellor’s announcement today to increase the Employment Allowance, the threshold for National Insurance contributions, the planned increase in the income tax threshold and the fuel duty cut. However, the fact remains that these will do little to help the bottom line for thousands of pubs and brewers around the country struggling with increasing overheads and concerned consumers.”

“In the Autumn Budget it is crucial that the punitive overall tax burden on our sector is addressed to reignite our industry with a long-term approach and vision for our sector recovery. This means business rates reform to reduce the disproportionate burden on pubs and implementation of alcohol duty reform proposals that supports Britain’s brewers, pubs and drives consumers towards lower-strength products.”