Parliamentary Inquiry Recommends VAT Stays at 12.5%

An inquiry by a group of influential MPs has recommended that VAT for the hospitality and tourism sectors stays at 12.5% beyond March.

The All Party Parliamentary Group (APPG) for Hospitality and Tourism, concluded that VAT should not return to 20% this April, citing UKHospitality data revealing that the lower rate would bring benefits including jobs, international competitiveness and social wellbeing.

Writing in the Inquiry into the Retention of the 12.5% Rate of VAT report, Kate Nicholls, Chief Executive of UKHospitality, which provides Secretariat services to the Hospitality and Tourism APPG, said: “The hospitality and tourism industry has been the hardest hit by the COVID-19 pandemic. However, with the right support, it can play a crucial role in the country’s economic recovery and help rebuild people’s wellbeing after they have had to live under social restrictions for the past two years.

“Hospitality and tourism is a major economic sector, because its businesses are community hubs that bring everyone together, across the entire nation. This will remain true as we learn to live with COVID.

“However, for businesses to provide the best possible service, they need to return to financial strength. We welcome this report from the APPG on Hospitality and Tourism, which highlights the importance of keeping VAT at 12.5% to achieve this.”

Simon Jupp MP (East Devon), Chair of the Hospitality and Tourism APPG, said in the report:

“Having sought views across the industry, it’s clear that keeping the reduced rate of VAT will help the hospitality and tourism industry get back on its feet after an exceptionally difficult two years. It’s really important to support the industry to help showcase the best of the UK”.

Vice Chair, Alison Thewliss MP (Glasgow), added:

“This report has been helpful in consolidating the evidence around what industry leaders have been telling us for some time – that a move away from the 12.5% VAT would put the brakes on investment and growth. Without continuation of this rate, many businesses and cultural institutions will be put at risk, at what is already a perilous time for recovery. The UK Government must pay attention to the thorough research provided by this report and take the steps needed to protect the industry.”

A UKHospitality member survey cited as part of the inquiry showed that nine in 10 businesses believed retention of 12.5% VAT was crucial to their recovery; while other figures published in the report show that all but one region of the UK employs more than 650,000 people in hospitality and receives over £3.5bn in tourism expenditure from visitors, with domestic tourism redistributing £25bn per annum from urban to rural and seaside economies – ‘the largest form of non-governmental redistribution of wealth in the UK’ – making hospitality and tourism ‘key economic drivers in every region of the country’.

In its conclusion, the inquiry report states: “The evidence submitted to the APPG…strongly supports the case for retaining the current 12.5% rate of VAT to support the industry in playing a key role in the UK’s economic recovery and the Government’s wider agenda, such as Net Zero and levelling-up.”

The inquiry examined seven areas in which 12.5% VAT would benefit the sector:
• support the viability of businesses – help businesses recover financially after being the hardest hit sector by the pandemic and allow them to operate on a more secure footing
• improve the rate of employment – enable businesses to employ more people and make vacancies more attractive (e.g. higher wages)
• positive impact on Treasury revenue – the tax cut would stimulate further economic activity
• support regional growth – could lead to regional investment across and within the UK’s home nations
• improve international competitiveness – makes the UK a more attractive holidaying location for domestic and international visitors through reduced prices and reinvestment in business offerings
• ease cost of living pressure – could reduce the cost of living and limit inflation through lower prices and avoiding price increases
• improve social wellbeing – businesses would be able to contribute more to their communities through the 12.5% rate by reinvesting in their offerings and engaging in social responsibility action (e.g. becoming more sustainable).

The report also stated: “Across every area, the inquiry found a substantial case for retaining the current 12.5% rate of VAT and, thus, the APPG recommends this policy remains in place beyond March.”