VAT up in emergency budget but no rise in alcohol duty

Chancellor George Osborne has announced VAT will rise to 20 per cent from January of next year, as he delivered his ‘unavoidable budget’ today in parliament.​

However in a serve emergency budget, which ushers in a two-year pay freeze for the majority of public sector workers, Osborne announced there would be no increase in alcohol duty, giving the hard pressed British pub some respite.

The chancellor has also done away with the unpopular hike in cider duty announced by the previous Labour administration in March, which will see duty reduce from 13 per cent  to 5 per cent (including inflation) in line with other alcohol categories.

With the VAT rise from 17.5 per cent to 20 per cent set for January next year and due to raise £13bn a year by the end of the current parliament, hospitality operators have at least been given time to work to absorb the additional costs, rather than facing an immediate hike that would have hit profits.

However, irrespective of no increase in alcohol duty in the budget, The Campaign for Real Ale has already warned that a hike in VAT to 20 per cent would raise the price of a pint by 6p, and cause the loss of 7,000 jobs a year​ without a compensatory cut in duty.

Supporting entrepreneurship​

In a bid to support entrepreneurship, the chancellor announced modest cuts in corporation tax, which will be scaled back from 28 per cent to 24 per cent during the next four years.

Small companies, those with profits under £300,000 a year, will pay corporation tax at a rate of 20 per cent, and employers' National Insurance threshold will be increased as well.

Plummeting consumer confidence​

A report ahead of the budget by Markit/YouGov this week found plummeting consumer confidence​, with consumers worried about job security and future earnings.

With the welfare sector suffering heavy cuts in today’s emergency budget sentiment is unlikely to improve, and job fears will persist amongst consumers with the news that the UK’s growth forecast for next year has been revised down from 3.25 per cent to 2.6 per cent.

This uncertainty was echoed by the latest Coffer Peach Business Tracker​, which predicted a tough time ahead for restaurant and pub operators as consumers rein in spending.

Despite a general overall improvement for UK Plc, the latest data from Experian showed that the failure rate amongst hotel and leisure businesses remained stubbornly high in May.