Potential double-digit price rises for customers as VAT goes back to 20%

Hospitality operators face no choice but to increase prices as VAT goes back to 20% from 12.5% tomorrow (1st April). That’s the warning from  UK Hospitality. It suggests the increases could result in double-digit price increases for customers.

Recent business surveys show the industry is facing a 95% hike in energy bills, 19% in labour costs, and a 17% and 14% rise in food and drink prices, respectively. It is thought these pressures have worsened considerably in the last two weeks. Keeping VAT at 12.5% would have supported operators trying to absorb this tidal wave of cost increases, which come as consumers face their own cost of living crisis.

Charlie Gilkes, founder and director of bar, restaurant and club operator The Inception Group,said, The Government could have helped ease the pain and aided the recovery by keeping VAT at 12.5% for longer but now the sector is also faced with this returning to 20%. Inevitably this going to be incredibly tough to bear and will massively exacerbate inflation.”

UKHospitality CEO Kate Nicholls said, “Given the unfolding cost-of-living crisis for consumers and soaring operating costs for businesses the return to 20% VAT for the sector will prove nothing less than catastrophic.

“The now inevitable price rises for consumers will dampen demand and many hospitality businesses – one in three having less than a month of cash reserves and most are carrying heavy debt burdens – will fail as a result. This can only cause the UK’s wider economic recovery to falter.

“If the sector is to have any hope of playing its full role in fuelling the UK’s recovery then we need support. We will continue to work closely with government to achieve the best possible trading conditions for the industry, keep pushing for reform of fundamentally unfair and crippling business rates, play our role in solving our workforce crisis and persist in making a case for the clear benefits a permanently lower rate of VAT will have. A move which has support not just from UK consumers but a significant number of MPs as well.”

Sector investor, Paul Campbell, of Hill Capital Partners LLP concluded, “It’s disappointing that the Government has withdrawn virtually all support from a sector that can demonstrably help drive the recovery, growth and create jobs – it had the opportunity to be far more progressive.  Hospitality businesses are fighting an unprecedented wave of cost increases and doing all they can to keep prices down for their customers.  But the removal of VAT relief makes this impossible and will lead to more inflation and menu pricing will inevitably rise.”

 

Category: News
Tags: Kate Nicholls, UKHospitality, VAT