Hospitality and tourism bosses plead for VAT rate freeze at 12.5%

Coalition of UK industry bodies warns of ‘painful’ job losses if Treasury returns tax to pre-Covid levels in April

Hospitality and tourism bosses are pleading with the government to permanently lower the VAT rate on businesses in their sectors to help safeguard thousands of jobs.

The appeal comes as the tax’s rate for pubs, restaurants, holiday accommodation and admission to certain attractions rises on Friday to 12.5%, following a temporary cut to just 5% that was introduced in July 2020 to help businesses struggling in the pandemic.

Under the Treasury’s current plans, VAT on hospitality and tourism sector purchases will rise again to the pre-pandemic level of 20% in April next year.

A coalition of the UK’s biggest hospitality and tourism bodies on Friday warned the chancellor, Rishi Sunak, that returning the rate to 20% “risks derailing the recovery at a time when businesses are still in survival mode”.

“Businesses are at a perilous stage of their recovery after what’s been a devastating 18 months,” the trade bodies said in their joint letter. “Costs are increasing and there are numerous operational challenges for them to deal with, specifically around labour and product supply. A reduction in VAT has helped many of our businesses survive to this point and was most welcome.

“However, the return of VAT to its pre-pandemic level next year would curtail investment, restrict growth, set back our tourism recovery and risk yet more painful job losses.”

The letter was signed by the heads of UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping, Tourism Alliance and the Association of Leading Visitor Attractions.

“We’re now calling on the chancellor to commit to introducing a permanent 12.5% rate of VAT in his upcoming budget, later this month,” they wrote. “This will help protect jobs and continue the support for our hospitality and tourism businesses, which contribute hugely to the nation’s economic and social wellbeing.”

The hospitality leaders said their sector had been the hardest hit in the economy, with collective income down by £100bn. They said 12,000 businesses had permanently closed as a result of the pandemic and 660,000 people had lost their jobs in the industry.

A survey of more than 800 members’ businesses found that 77% thought the reduced VAT rate was “important or crucial to viability”, while 60% said that if the VAT rate were increased to 20% in April they would have to cut jobs, and one in 10 companies said they would probably close down altogether.

Kate Nicholls, the chief executive of UKHospitality, said: “With the right support and conditions, the sector has the potential to be at the forefront of the economic recovery.

“In order to drive further job creation, we urge government to implement a long-overdue reform of business rates and a permanently lower rate of VAT for hospitality and tourism in order to help fragile businesses back on their feet.”

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Businesses are warning consumers to expect price rises from Friday as they pass on the cost of the tax and other rising costs to consumers.

Sacha Lord, the night-time economy adviser for Greater Manchester and a co-founder of Parklife festival, said he expected that drink prices in pubs would rise by 7-10% as a result of the change.

A survey by the pub trade newspaper the Morning Advertiser found that 63% of publicans were expecting to increase their prices.

JD Wetherspoon has said it will increase the price of its food by 40p a meal from Friday to reflect the VAT change. The chain, which has 860 pubs, said the VAT increase would “make the entire hospitality industry less competitive”.

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