Nearly a quarter of hospitality businesses in the UK are losing money, according to new industry data, reigniting calls for a reduced VAT rate. Chefs, pub owners, and restaurateurs argue that cutting VAT from 20% to 10% would ease pressure on the ailing sector and align the UK with most European countries. However, critics warn the measure could cost up to £12bn and disproportionately benefit large multinational corporations.
Why does hospitality need help?
Pubs, bars, restaurants, nightclubs, and hotels were among the hardest-hit businesses during the Covid-19 pandemic, when thousands of venues were forced to close. Since then, energy prices have soared, initially due to Russia's invasion of Ukraine and more recently because of disruptions in the Strait of Hormuz. Policy decisions, particularly the increase in employers' national insurance contributions and the national minimum wage, have added £5bn a year to the sector's costs since Labour took office, according to industry trade bodies.
Fresh data commissioned by these bodies reveals that nearly a quarter of hospitality businesses are losing money. One in six fear they will not survive the year, and 5% say they are no longer financially viable. The situation is widely described as grim.
What does the sector want?
The "VAT's the problem" campaign, led by celebrity chef Tom Kerridge, is calling for hospitality VAT to be cut from 20% to 10%. Many European countries already have lower rates: Germany charges 7%, while France, Italy, and Spain all apply 10%. On Wednesday, the Republic of Ireland will lower its rate for food-led businesses to 9%.
More than 240,000 people have signed a petition supporting the proposed cut. Venues are rolling out the petition to customers this week, aiming to collect 1 million signatures. Ravneet Gill, a Junior Bake Off judge who owns the chophouse bistro Gina in Chingford, said paying 20% VAT leaves her profit margins "tiny." She added, "If we just had that little bit of a load lightened, we could increase the workforce, we could train new people up, but at the moment, everyone is so conservative about hiring anybody, which is very worrying."
Is it likely to happen?
Andy Burnham, widely expected to be the next prime minister, has previously backed a 10% reduction in hospitality VAT to support restaurants and pubs. However, in a speech outlining his economic vision on Monday, Burnham did not mention the VAT cut. Instead, he promised to "reform business rates" to support high street businesses such as pubs, describing them as a "symbol of Britain's renaissance."
Nick Mackenzie, chief executive of Greene King, which operates approximately 2,700 pubs, hotels, and restaurants, is encouraged by the political discourse. "It makes you realise that some senior politicians understand that hospitality is important to this country, not just economically, but the social value and the wellness that it creates within communities around the country," he said. "Anyone who gets that, if they become prime minister, can then deliver on some of the promises around business rates and VAT that they've made."
What are the counter-arguments?
HMRC estimates that a 10% VAT cut would cost the government £10.5bn. However, the thinktank Tax Policy Associates (TPA) estimates the actual cost could be closer to £12bn and argues that this may not be a wise use of taxpayers' funds. According to a TPA report, the biggest immediate beneficiaries would be large businesses, many of them multinational. For example, fast-food chain McDonald's would retain an extra £432m.
Dan Neidle, founder of TPA, said, "It's a hugely expensive and inefficient tax cut, and the evidence shows that most of the benefit will be retained by large businesses to boost their profits." Nick Mackenzie disagreed, arguing that the economic benefits would be felt rapidly. "This industry creates investment and jobs, particularly for young people, at a pace that I think no other industry does," he said.
What else might help?
TPA suggests that changes to business rates, a promise made by Andy Burnham, would be a better starting point. Business rates are linked to property values, meaning hospitality venues often pay unsustainable rates. While Chancellor Rachel Reeves has sought to mitigate this, broader-scale rate changes could be transformative for the sector.
A reversal of the national insurance contribution increase, which has been described as a tax on jobs, could also help venues invest in hiring more staff. Ravneet Gill said, "We really want to train and hire more people because where we are, we have this amazing local community of kids who don't want to go to university, we would happily take them on. I want to hire them, I want to train them." She added, "I love the high street and I want it to look a bit more fruitful than it does."
