Hospitality leaders call for VAT freeze to 'help curb inflation'

A joint letter calls on the Treasury to maintain the current level to enable businesses to continue their recovery, to protect jobs, and to help stave off higher inflation in the economy.

Spearheaded by UKHospitality (UKH), signatories to the letter include individual businesses, a swathe of SMEs and some huge multi-national enterprises.

The signatories include leaders from Apex Hotels, BaxterStory, Bourne Leisure, Big Table Group, Caffe Nero, Center Parcs, Côte, Fuller’s, Greene King, Hilton, IHG Hotels and Resorts, JD Wetherspoon, Loungers, Marston’s, Mitchells & Butlers, Moto Hospitality, Nobu, Parkdean Resorts, Pho, Pizza Express, Pizza Hut, Punch Pubs, Revolution, Rekom, The Restaurant Group, The Savoy Hotel Group, Wagamama and Young’s, plus many more.

The letter highlights the success of the lower rate of VAT applied for tourism and hospitality (on food, accommodation and non-alcohol drinks) in enabling businesses to survive, protect jobs and to continue their recovery, despite “the ravages of the pandemic”. It says the policy has been paramount in helping businesses to keep their prices to customers as low as possible, in the face of significant cost pressure in the sector, including the cost of energy, transportation, wages and food and drink.

A major concern of the impact of the VAT rise is that businesses will have no choice but to significantly raise their prices, putting pressure on the cost of hospitality experiences and also further fuelling inflation across the economy.

The current rate of 12.5% is set to rise to 20% in April unless the Chancellor intervenes. The month will bring what has been described as a cliff edge for the hospitality industry with a rise in VAT set to happen alongside a rise in the national minimum wage, plus changes to business rate relief plus an end to the rent moratorium, which will impact thousands of operators.

Kate Nicholls, CEO of UKHospitality, said: “There are many compelling reasons why VAT should be held at the current rate given the current circumstances. However, this is about so much more than an extension to temporary measures in the face of the challenges brought by Covid; it’s about working to establish the right tax level for our world-class hospitality and tourism industries. It is vital, in the interests of competitiveness, job creation, growth and ensuring hospitality and tourism play their full part in driving the economic recovery.”

Helping to curb inflation​

UKH is also urging the government to keep VAT at 12.5% in the interests of limiting inflation. In a recent study of its members, 93% of companies said they intended to increase their prices by 11% in the next few months – double the headline rate of inflation in December 2021.

Due to the disproportionate impact hospitality has on the Bank of England’s ‘basket of goods’ – the cost of various items used by the bank to track inflation – an 11% price increase in hospitality would feed through into a rise of 1.7 percentage points to the headline rate of inflation, over the next 12 months.

Nicholls added: “We are asking the Chancellor to give companies and consumers room to breathe. We have had a very challenging two years where hospitality was hit first, hardest and longest. This industry has borne the full brunt of the economic restrictions due to Covid. Companies have no cash in the bank and are being squeezed from all directions. They must pass costs on or go bust. The only question is by how much prices rise.”

VAT move to save £4.6bn​

The letter to the Chancellor follows a joint study by UKHospitality, the Tourism Alliance, the British Beer & Pub Association, and the Association of Leading Visitor Attractions, revealing a permanent rate of 12.5% would create 286,850 jobs over 10 years​​, and generate £7.7bn of additional turnover.

The new report, commissioned jointly by the four bodies, found that a permanent rate of 12.5% will bring VAT on hospitality and attractions in line with the European average, adding that at 20% it is nearly double; and set off a 'virtuous cycle of industry investment and growth' to help ‘level up’ UK regions.

Other headline results from the analysis of the impact of retaining VAT at 12.5%, rather than returning to 20%, for hospitality and tourism include delivering £4.6bn in net present value of fiscal gains to the HM Treasury over 10 years; and returning a positive gain on the Government’s investment in less than five years.