Hospitality leaders make last-ditch call for Chancellor to keep VAT at 12.5%

Written in support of UKHospitality's #VATsEnough campaign, which was launched by the trade body earlier this month​​, the letter sets out a series of potential benefits to locking in the current reduced 12.5% VAT rate for hospitality permanently.

They include putting a halt to price rises for hard-working families; enabling the industry to generate new jobs; supporting higher wages and better training; unlocking capital to deliver a greener future; and allowing businesses in the sector to remain globally competitive.

Under current plans, VAT will return to its pre-pandemic level of 20% in April 2022, just as next year’s peak season begins.

It was previously reduced to 5% by the Treasury in July 2020 following the first national lockdown, and rose to an intermediate rate of 12.5% earlier this month. 

UKHospitality, which has made numerous calls for VAT to be reduced permanently, has previously claimed that reducing VAT permanently will enable sector businesses to create 125,000 jobs, rebuild their balance sheets, boost investment, avoid damaging price increases, and accelerate the UK’s post-pandemic economic recovery.

“Hospitality is a critical component of the UK economy, with the potential to be at the heart of the Government’s plans to Build Back Better," says Kate Nicholls, chief executive of UKHospitality.

"We can support job creation, levelling up and the road to net zero – but we need the Government to come with us on our recovery journey.

“Under current plans, VAT returns to its pre-pandemic level of 20% next April, meaning higher prices for consumers just at the time when they can least afford it. For businesses it will undoubtedly set off an inflationary spiral which will undermine wage growth, hit demand and ultimately threaten jobs."

Recent YouGov polling for UKHospitality showed that six in 10 adults (57%) who have a view believe that the hospitality sector VAT rate should not return to 20% next year, while seven in 10 (70%) think the Government has a responsibility to support the sector’s recovery.

Half (49%) of the adult population say they will eat out less frequently if prices were increased in restaurants, pubs and cafes. 

Nicholls adds that keeping VAT at 12.5% permanently will allow the sector to circumnavigate the monumental challenges faced by businesses and enable operators and their teams to concentrate time and resources on driving economic growth and serving their communities.

“Longer term, there is no doubt that a return to the higher rate of VAT will prevent the industry playing its full part in the Government’s levelling up agenda and in delivering its commitment to focus on good work, better skills, and higher wages," she continues. 

"That is why it’s vital the Chancellor must keep VAT permanently at 12.5% for our sector.”