Hold VAT at 12.5%, UK hospitality leaders urge government

Keeping VAT at 12.5% would place the UK more in line with the European average while encouraging investment and growth, hospitality leaders have urged | Photo credit: Daryan Shamkhali

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More than 250 prominent hospitality leaders have signed a joint letter urging the UK government to hold VAT at 12.5% ahead of its planned reinstatement to 20% beyond March 2022.
 
Spearheaded by trade association UKHospitality, the letter urges the Chancellor, Rishi Sunak, to rethink the scheduled rise to enable businesses to maintain a fragile recovery from the pandemic and safeguard jobs.
 
The letter also highlighted the benefits of the lower rate of VAT for the wider economy, including helping to curb inflation, the forecast creation of more than 286,000 jobs, and delivering £4.6bn ($6.2bn) in net present value of fiscal gains to HM Treasury over 10 years.
 
Furthermore, keeping VAT at 12.5% would place the UK more in line with the European average while encouraging investment and growth, signatories urged.
 
‘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,” said Kate Nicholls, CEO of UKHospitality.
 
“We are asking the Chancellor to give companies and consumers room to breathe,” Nicholls added.
 
Signatories to the letter include business leaders from Apex Hotels, BaxterStory, Bourne Leisure, Big Table Group, Caffè Nero, 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.
 
VAT for UK hospitality businesses was cut from 20% to 5% in July 2020 as part of a package of government measures to support the industry through Covid-19 trading restrictions. The rate was partially reinstated to 12.5% in October 2021 as is scheduled to return to 20% on April 1, 2022.
 
The rising cost of living, including soaring energy prices, materials costs and ongoing supply chain disruption, are already placing pressure on coffee shops and hospitality businesses in the UK.

A survey conducted by UKHospitality indicated that 93% of hospitality businesses said they intended to increase their prices by 11% in the next few months – double the headline rate of inflation in December 2021.
 
In January 2022, World Coffee Portal’s Project Café UK 2022 report found the £4.4bn UK branded coffee shop market had recovered to 87% of pre-pandemic value, achieving a better-than-anticipated £1.3bn sales rebound in 2021.
 
However, the research also identified that the planned reinstatement of VAT, the rising cost of living, staff shortages and squeezed consumer income could further erode already thin sales margins for UK coffee shops in the year ahead.