With less than a month before the UK government’s autumn budget (27 October), Sue Rathmell, partner at MHA, believes the Chancellor should reduce the VAT rate for the hospitality and tourism sector permanently and call off the return to 20% VAT from April 2022:
“The UK tourism and hospitality sector is screaming for help and the Chancellor needs to not only listen, but more importantly act to support businesses recover from the pandemic. This has become urgent as the lower 5% VAT rate, which the sector had been benefitting from since mid-July 2020, increased to 12.5% from 1 October and will return to 20% from April 2022. What Rishi Sunak should do is call off this increase and instead implement a permanent VAT rate reduction – something which the sector has been pleading for for years.
“Lower VAT costs encourage people to holiday in their own country instead of going abroad, boosting income in the whole country. This is why retaining a lower VAT rate is vital to the industry. If the government were to maintain the 12.5% VAT rate indefinitely after 1 April 2022 instead of returning to the standard rate, the reinvigoration of the UK’s tourist centres, beach towns, tourist attractions, hotels and restaurants could continue. It would be a massive boost for the UK economy if we can encourage British people to continue to holiday at home. Retaining the 12.5% VAT rate can help to achieve just that. What’s more, many European countries already have a permanent reduced VAT rate for hotel accommodation, so this would further put the UK in line with peers.
“The recovery in the hospitality and tourism sector is on a razor’s edge. Restaurants and pubs have already indicated that they will have to increase prices in order to pay for the VAT rise. The increased cost of importing food into the UK post-Brexit and the shortage of staff also means that firms have had to pay more to attract new employees and retain existing ones. In addition, many businesses have recently started to make repayments on government backed loans that were taken out during the early stages of the pandemic and the recent increase in VAT rates, coupled with the reduction in rates relief, will put increased pressure on cashflow over the challenging winter months.
“Some commitment from government to help solve the staffing shortages in the sector would also be very welcome, for example in the form of incentives to encourage businesses to recruit and train young people alongside a temporary amendment to immigration policy to help address shortages while the new workforce is developed.
“With so much at stake, the time has come for a bold move to help the industry not only as it finds its feet post-Covid-19, but for its long-term future.”