Return to 20% VAT “missed opportunity” to accelerate hospitality recovery

Kate Nicholls, Chief Executive of UKHospitality

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A RETURN to 20% VAT for the hospitality and tourism industry will be met with disappointment by thousands of hospitality businesses, UKHospitality said, following the Chancellor’s statement today. In addition, it said that ending the 12.5% rate for hospitality would jeopardise jobs and restrict the sector’s efforts to stifle price rises for consumers, and its ability to lead the UK’s post-pandemic economic recovery.

The leading trade body – which had been urging Chancellor Rishi Sunak to freeze VAT at 12.5% to protect fragile businesses and jobs – called the removal of this relief, in today’s Spring Statement announcement, a massive missed opportunity.

UKHospitality Chief Executive Kate Nicholls said: “This is a real setback for thousands of UK hospitality businesses still suffering the devastating effects of Covid, and facing a tidal wave of rising costs. For many businesses, the removal of the lifeline of a lower rate of VAT might prove fatal. For a heavily, disproportionately taxed sector a return to 20% dashes the hopes that many businesses could begin to recoup some of the losses of the last two years.

“Operators in the sector – large and small – have several hurdles to clear on the road to recovery: huge accumulated debts; unprecedented rising costs for energy and raw goods; a chronic shortage of staff; and a fundamentally unfair and crippling business rates regime we’re desperate to see reformed.

“Locking in VAT at 12.5% would have given hospitality businesses a major boost, and helped the sector in its ambition to lead the UK back to post-Covid prosperity. As it is, thousands of jobs could be lost, the UK will remain uncompetitive versus international rivals, and already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation.

“Despite today’s disappointment, UKHospitality will continue to work closely with government to achieve the best possible trading conditions for the hospitality industry – which remains the sector best placed to turnaround the economy – and is buoyed by recent support for our 12.5% VAT call from a significant number of MPs.”

There were more positive elements of the Chancellor’s statement, Nicholls said: “The reform of the Apprenticeship Levy, to focus on improving productivity, is something on which we have lobbied Government for five years or more and will be widely welcomed by our sector. Additionally, the generous increase in the NIC threshold for employees is a very positive move and will boost disposable income, although extending that measure to employers would help hospitality businesses to recruit and retain talent.

“In short, the longer-term measures in the Chancellor’s statement will be positive for those businesses equipped to survive the coming months. However, the opportunity – primarily through retaining VAT at 12.5% – to help more vulnerable hospitality businesses navigate their way through to the autumn has sadly been missed.”

Sam Martin, COO of Peckwater Brands, said: “Problems within the hospitality sector stretch far beyond Covid. From staff shortages to the rising costs of energy and raw goods, the sector is unlikely to return to pre-pandemic performance levels for some time. As such, the Government’s failure to acknowledge VAT rates will only serve to add to anxiety within the industry.

“That said, the hospitality sector has remained resilient throughout the pandemic, with new and creative ways to increase their output and revenues. For example, Peckwater Brand’s research found that 75% of such businesses incorporated takeaway functions into their operations, while 56% began running a virtual brand or dark kitchen from their premises. Such figures highlight the creativity within the sector, and its ability to overcome the current issues it faces.

“There will be no quick-fix to the problems within the hospitality sector – and planned increases to VAT are unlikely to ease concerns about the future. However, figures show the sector is willing to be flexible and open to operational changes throughout challenging periods. As such, I remain cautiously confident that we will see a gradual return to pre-pandemic performance in the coming years.”


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