Hospitality sector faces financial crisis as losses mount
Nearly a quarter of UK pubs, bars and restaurants are losing money, according to new survey data released as a group of celebrity chefs and business owners intensify their campaign for a sector-specific VAT reduction. The research, commissioned by hospitality trade bodies, reveals that 23% of respondents are operating at a loss, a sharp increase from 15% just three months ago.
One in six businesses reported that they risk going bust within 12 months, while 5% said they are not financially viable. The findings underscore the mounting pressures on an industry already grappling with thin profit margins.
Celebrity chefs lead VAT reduction campaign
The campaign, spearheaded by chef Tom Kerridge under the banner “VAT’s the problem,” calls for cutting VAT on hospitality from 20% to 10%. It will be publicly launched from Wednesday, aiming to gather signatures from venue visitors across the country to back the reduction. Kerridge, who owns six venues and holds three Michelin stars, stated: “Our hospitality culture in the UK is the best in the world, but we continue to be hit with unfair levels of tax.”
He is joined by notable figures including Wahaca founder Thomasina Miers, Greene King CEO Nick Mackenzie, and chef-restaurateur Ravneet Gill. The campaign highlights that the UK’s VAT rate on food and drink service is higher than the European average of 12.8%. France, Spain, and Italy all charge 10%, Germany charges 7%, and the Republic of Ireland is set to lower its rate for food-led businesses from 13.5% to 9% on Wednesday.
Economic pressures compound industry woes
The sector has been hit by Labour’s decision to increase employers’ national insurance contributions and the national minimum wage, alongside soaring inflation and energy costs. These factors have piled pressure on businesses operating on threadbare margins. The trade bodies’ joint statement emphasized the “devastating impact” of taxation, noting that VAT would be the “most impactful” way to address the problem.
“The reality is stark,” the statement read. “The number of businesses now operating at a loss is accelerating rapidly and too many businesses are facing the gut-wrenching decision of whether they have to close their doors for good. The government needs to act to back hospitality and reduce its tax burden.”
VAT cut proposal faces scrutiny
The proposed VAT cut is estimated to cost the Treasury between £10.5bn and £12bn. It has received tentative backing from Britain’s prime ministerial hopeful, Andy Burnham, who has previously indicated support for a reduction, though he did not mention it in a recent speech on economic priorities. However, the independent thinktank Tax Policy Associates expressed scepticism, warning that the cut would mainly benefit big businesses and that £12bn could be better spent to spur growth.
Despite this, the industry remains focused on securing the reduction, arguing that lower VAT rates in other countries demonstrate the need for similar support in the UK. Kerridge added: “Almost every other country recognises the need to support hospitality with a lower rate of VAT.”
