Over 250 Hospitality Business Leaders Urge Chancellor to Hold VAT at 12.5% to Protect jobs, Firms, Pricing & Inflation

More than 250 business leaders from hospitality and leisure have written to the Chancellor Rishi Sunak urging the Government to keep VAT at 12.5% beyond March 2022.  They call on the Treasury to maintain the current level to enable many fragile businesses to continue their recovery, to protect jobs, and to help stave off higher inflation in the economy.

Spearheaded by UKHospitality, signatories to the letter include individual businesses, a swathe of SMEs and some huge multi-national enterprises.

Commenting, Kate Nicholls, CEO of UKHospitality, said: “There are many compelling reasons why VAT should be held at the current rate given the current circumstances. However, this is about so much more than an extension to temporary measures in the face of the challenges brought by Covid; it’s about working to establish the right tax level for our world-class hospitality and tourism industries. It is vital, in the interests of competitiveness, job creation, growth and ensuring hospitality and tourism play their full part in driving the economic recovery.”

The hundreds of signatories to the letter include business leaders from: Apex Hotels, BaxterStory, Bourne Leisure, Big Table Group, Caffe Nero, Center Parcs, Côte, Fuller’s, Greene King, Hilton, IHG Hotels and Resorts, JD Wetherspoon, Loungers, Marston’s, Mitchells & Butlers, Moto Hospitality, Nobu, Parkdean Resorts, Pho, Pizza Express, Pizza Hut, Punch Pubs, Revolution, Rekom, The Restaurant Group, The Savoy Hotel Group, Wagamama and Young’s, plus many more.

The letter highlights the success of the lower rate of VAT applied for tourism and hospitality (on food, accommodation and non-alcohol drinks) in enabling businesses to survive, protect jobs and to continue their recovery, despite “the ravages of the pandemic”. It also says the policy has been paramount in helping businesses to keep as low as possible their prices to customers, in the face of significant cost pressure in the sector, including the cost of energy, transportation, wages and food and drink.

A major concern of the impact of the VAT rise is that businesses will have no choice but to significantly raise their prices, putting pressure on the cost of hospitality experiences and also further fuelling inflation across the economy.

The current rate of 12.5% is set to rise to 20% in April unless the Chancellor intervenes. The month will bring what has been described as a cliff edge for the hospitality industry with a rise in VAT set to happen alongside a rise in the national minimum wage, plus changes to business rate relief plus an end to the rent moratorium, which will impact thousands of operators.

HELPING TO CURB INFLATION

UKHospitality is also urging the government to keep VAT at 12.5% in the interests of limiting inflation. In a recent study of its members, 93% of companies said they intended to increase their prices by 11% in the next few months – double the headline rate of inflation in December 2021.

Due to the disproportionate impact hospitality has on the Bank of England’s ‘basket of goods’ – the cost of various items used by the bank to track inflation – an 11% price increase in hospitality would feed through into a rise of 1.7 percentage points to the headline rate of inflation, over the next 12 months.

Nicholls added: “We are asking the Chancellor to give companies and consumers room to breathe.  We have had a very challenging two years where hospitality was hit first, hardest and longest. This industry has borne the full brunt of the economic restrictions due to Covid. Companies have no cash in the bank and are being squeezed from all directions. They must pass costs on or go bust. The only question is by how much prices rise.”

VAT MOVE TO SAVE £4.6 BILLION

The letter to the Chancellor comes hot on the heels of a joint study by UKHospitality, the Tourism Alliance, the British Beer & Pub Association, and the Association of Leading Visitor Attractions, revealing the massive benefits if the current VAT rate is retained.

The report found that a permanent rate of 12.5% would bring VAT on hospitality and attractions in line with the European average (at 20% it is nearly double) and set off a virtuous cycle of industry investment and growth, helping ‘level up’ UK regions.

Headline results from the study included:

  • Creating 286,850 jobs over 10 years
  • Generating £7.7bn of additional turnover over 10 years
  • Delivering £4.6bn in net present value of fiscal gains to HM Treasury over 10 years
  • Returning a positive gain on the Government’s investment in less than five years.

LETTER FROM BUSINESS LEADERS IN HOSPITALITY TO CHANCELLOR RISHI SUNAK:

 
Dear Chancellor,

The reduced rate of VAT that you introduced as part of the Plan for Jobs has been an incredible success, helping us to sustain jobs and businesses despite the ravages of the pandemic’s various waves. It has been critical in keeping prices affordable for our customers.

The pandemic highlighted how much the nation has missed hospitality and tourism, and the important part it plays in our lives. However, costs are increasing and our customers are feeling the pinch. The imminent return to a 20% VAT rate will exacerbate the squeeze on household finances.

The increase in input prices to hospitality businesses have been absorbed, largely through the headroom provided by the reduced VAT rate. As costs relating to labour, energy, and food and drink supplies continue to rise, the reduced rate is ever more important.

The reduced rate also bolsters deliverability of many of the Government’s key policies – including levelling up, high street regeneration, employment and skills growth, and investment in net zero –allowing our sector to fully play its part in an economic recovery.

The Government has rightly celebrated being the most open nation in Europe following the Omicron variant. As we look to revive our tourism, maintaining a reduced rate of VAT is imperative, as it simply brings us in line with the levels of VAT levied in our competitor European nations.

The policy has been a resounding success and is central to our sector and the nation’s economic recovery. We therefore implore you to maintain VAT at 12.5% and witness the hospitality sector rebound strongly and deliver jobs and growth around the country.

Yours sincerely,

Kate Nicholls, CEO, UKHospitality