Firstly, a well-deserved congratulations to MP Emma Lewell-Buck for bravely raising the question of reducing VAT for the hospitality industry. It is a question that has been asked time and again but, sadly, never answered with the courage or vision required to effect meaningful change.
The cynic in me fears that this critical issue will, as always, fall on deaf ears.
A VAT reduction for hospitality requires more than just a passing acknowledgment—it demands courage, vision, and innovative leadership. And yet, these qualities are conspicuously absent among our policymakers.
No matter how many times industry leaders lobby Parliament, no matter how much research proves the economic and social benefits of such a move, and no matter how often we point to the success stories in Europe, this issue remains a can that successive governments are all too willing to kick down the road.
The truth is, as I wrote last week, the government has long since run out of OUR money. They are utterly bereft of inspirational ideas to create the wealth needed to plug the gaps caused by their own failings. Their only policy, it seems, is to tax until the pips squeak.
The Bleak Outlook for Hospitality
In just a few months, in April, the hospitality sector will be hit by a tidal wave of government-led challenges: rising National Insurance contributions, increased business rates, soaring energy costs, and national minimum wage hike.
Observers are warning of inevitable business closures, mass layoffs, and reduced investment—yet the government’s response is akin to King Canute, hopelessly trying to hold back the tide.
Look around you. The signs are already there. In my own town Bournemouth, a leading high street chemist that once had six fully manned pay stations has replaced them with six self-serve checkouts and just one supervisor.
Today (January 24), two major supermarket chains announced thousands of job losses, and redundancies across industries are at their worst since 2009.
It doesn’t take an economist to understand that increasing the cost of employing people inevitably leads to businesses cutting staff. This is simple common sense.
Lessons from the Past
Not long ago, during the pandemic, the government intervened to support hospitality when it was on its knees. The Eat Out to Help Out scheme and temporary VAT reductions to 5% and later 12.5% were lifelines that saved countless businesses and jobs. These measures stimulated growth, protected high streets, and preserved livelihoods.
The current cost-of-living crisis poses an existential threat to hospitality, just as COVID-19 once did. Rising liabilities are crushing businesses that operate on razor-thin margins.
The hospitality industry is unique in that its two biggest costs—wages and food—carry little to no VAT, leaving businesses with large VAT bills and few offsets.
A permanent VAT reduction to 12.5%, as proposed by the Centre for Economics and Business Research, could:
- Create up to 250,000 jobs in the sector.
- Enable businesses to lower prices, increasing footfall and consumer spending.
- Reduce closures, preserving the vibrancy of UK high streets.
- Stimulate growth in surrounding businesses through increased footfall.
During the temporary VAT reduction, many businesses were able to stay afloat, retaining staff and contributing to the local economy. Why can’t we replicate this success now?
The Broader Economic Case
Reducing VAT is not just about hospitality businesses; it’s about their employees, customers, and communities. The hospitality sector employs over 3 million people, generates £40 billion in tax revenues, and drives £138 billion in sales annually. Supporting this sector isn’t special treatment—it’s common sense.
Time to Listen to Experts
The government must stop relying on hollow promises, failed policies and start listening to the experts who have “walked the walk.” Those who understand the day-to-day realities of running a business know what works—and they’ve seen it work across Europe.
A VAT reduction isn’t unprecedented or radical. It’s a practical, proven strategy that can help the hospitality sector weather the storm, protect jobs, and drive economic growth.
The question is: will the government finally show the courage and vision to act? Or will they continue to bury their heads in the sand while one of the UK’s most vital industries sinks further into crisis?
The time for weasel words is over. It’s time for action!