Spring Statement Met with Disappointment by “Thousands” of Hospitality Businesses

Picture by Harriet Pavey/ No 10 Downing Street

Sector leaders have hit out at Chancellor Rishi Sunak’s Spring Statement, which has been met with disappointment, and called a “bitter blow” to a beleaguered sector still struggling from the fallout of the pandemic.

The return to 20% VAT for the hospitality and tourism industry on April the 1st has been met with disappointment by thousands of hospitality businesses, UKHospitality said, following the Chancellor’s statement today. In addition, it said 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.

Trade bodies had been urging the chancellor to freeze VAT at 12.5% to protect fragile businesses and jobs, calling the removal of this relief, Undescribed the chancellor’s failure to address this issue as “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.

“Despite today’s disappointment, UKHospitality will continue to work closely with government to achieve the best possible trading conditions for the hospitality industry – which remains the sector best placed to turnaround the economy – and is buoyed by recent support for our 12.5% VAT call from a significant number of MPs.”

There were more 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.”

Chris Jowsey, CEO of Admiral Taverns, said:
“I’m disappointed the Chancellor has not announced any new support measures for the pub and brewing industries, which together contribute £26.2 billion to the UK economy each year. Industry trading volumes have not yet returned to pre-pandemic levels and its vital that the Government continue to invest in the sector at this critical juncture as support measures come to an end. Our licensees worked incredibly hard to sustain community pubs throughout the pandemic and yet their businesses are now being put at risk by further rising costs such as energy and food prices. If community pubs up and down the country are to keep their doors open and, in doing so, maintain the jobs of the 936,000 people employed in these industries, I urge the Government to consider further support through the immediate introduction of lower beer duty (currently planned for 2023) and much needed reform of business rates.”

Paul Waterson, SLTA media spokesperson, comments:
“The Scottish Licensed Trade Association (SLTA) is disappointed that a return to 20% VAT for the hospitality and tourism industry is to go ahead – this is a bitter blow for hospitality businesses which are only just getting back on their feet as they recover from the pandemic.

“Our hope was that there would be a freeze at the current 12.5%. There is no doubt that returning to 20% will potentially jeopardise jobs and lead to price hikes at a time when the cost-of-living crisis is growing and bills for everyone are increasing.

“We have previously called for the permanent reduction of VAT for the hospitality sector to allow us to compete on a more level footing with our foreign competitors who enjoy much lower levels of VAT.”

Nick Mackenzie, chief executive of Greene King, commented:
“Whilst the Government has taken some important steps to address the cost of living crisis, including the very welcome cut to fuel duty, we feel the measures announced in today’s Spring Statement do not go far enough to support pubs. We’re disappointed that the Chancellor has failed to reverse the VAT rise for the hospitality sector, which is a bitter blow for UK pubs still struggling to recover following the pandemic. Coupled with rising prices across the supply chain, and disproportionately high business rates, today’s VAT hike is a missed opportunity for the industry and puts at risk the ability of UK pubs to fully recover from the pandemic, create jobs and support the wider economy.”

Richard Godmon, tax partner at accountancy firm, Menzies LLP, said:
“Businesses will like the idea of a new Tax Plan, providing a long-term view of the fiscal landscape. This could help them to plan to make investments and reduce transactional pressures on their business activities. However, there isn’t much detail on what the plan will look like, just some promises to extend R&D tax relief and cut Income Tax, so we will have to wait and see.”

Conor Shaw, CEO of workforce management specialist Bizimply, said:
“While the increase in the National Insurance threshold from July won’t resolve the recruitment crisis facing hospitality, it has the potential to ease the challenge facing operators trying to cover shifts.

“Many of the businesses we work with rely on part-time staff, including team members who combine work with their studies, or who have childcare or other commitments. For these employees, the potential to take home a little more from every shift they work may be enough of an incentive for them to sign up for the additional hours that every operator is crying out for!

“Operators trying to run their businesses with 10% vacancy rates need their existing staff to be 10% more efficient, and every employee willing to work an extra shift helps to relieve the immediate challenge for employers.

“Businesses that have robust workforce management systems in place will be able to input the new NI rates and process any changes in employees’ shift patterns quickly, and so will be best placed to benefit from the Chancellor’s concession.”

Kevin Georgel, Chief Executive, St Austell Brewery said:
“Recovery of the hospitality sector has been a priority as restrictions have eased. Undoubtedly, costs have risen exponentially for businesses given the ongoing situation in Ukraine, and rising inflation, energy and fuel costs present a significant concern, meaning further financial support in these challenging times is crucial. We are therefore disappointed that the government has decided not to extend the 12.5% rate of VAT today, and that it will return to 20% next month.

“Pubs create jobs and play a huge part in the UK tourism sector, something which is critical to the economy here in the South West. Pubs are also at the heart of communities across the West Country and beyond, providing people with places to gather and socialise.

“The economic and societal benefits of extending the 12.5% VAT rate would have been enormous and enabled tourism and hospitality to thrive. We would urge the government to provide further long-term support to Britain’s pubs and breweries by addressing the overall tax burden that businesses now face. This will enable the hospitality sector to rebuild and help businesses like ours play a role in accelerating the UK’s economic recovery.