Hospitality bosses urge chancellor to hold 12.5% VAT

More than 250 leaders from the hospitality and leisure sectors have written to chancellor Rishi Sunak, urging the government to keep VAT at the reduced rate of 12.5% beyond March 2022. Industry bosses have called on the treasury to retain the current level to support businesses in their Covid recovery process, protect jobs and help to combat inflation. 

Initiated by industry body UKHospitality (UKH), letter signatories include individual businesses, SMEs and a number of large multi-national enterprises, including Big Table Group, Caffè Nero, Côte, Loungers, Nobu, Pho, Pizza Express, Pizza Hut, The Restaurant Group, Wagamama and more. 

"There are many compelling reasons why VAT should be held at the current rate given the current circumstances. However, 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 interest of competitiveness, job creation, growth and ensuring hospitality and tourism play their full part in driving the economic recovery," says UKH CEO Kate Nicholls. 

The letter highlights the benefits of the lower VAT rate for tourism and hospitality (on food, accommodation and non-alcoholic drinks), noting that the policy has been key to helping businesses keep their prices affordable for customers, even in the face of significant cost pressures such as the rising cost of energy, transportation, wages and food and drink. 

The letter closely follows a joint study by UKH, the Tourism Alliance, the British Beer & Pub Association and the Association of Leading Visitor Attractions, which found that maintaining the lower rate of 12.5% would save £4.6bn over 10 years. 

Curbing inflation

UKH has also urged the government to keep the lower rate in the interests of limiting inflation. In a recent study of its members, 93% of companies said they intended to increase their prices by 11% in the next few months – double the headline rate of inflation last December. 

Due to the disproportionate impact hospitality has on the Bank of England’s ‘basket of goods’ – the cost of various items used by the bank to track inflation – an 11% price increase in hospitality would feed through into a rise of 1.7 percentage points to the headline rate of inflation, over the next 12 months.

“We are asking the chancellor to give companies and consumers room to breathe," adds Nicholls. "We have had a very challenging two years where hospitality was hit first, hardest and longest. This industry has borne the full brunt of the economic restrictions due to Covid. Companies have no cash in the bank and are being squeezed from all directions. They must pass costs on or go bust. The only question is by how much prices rise.”

Full letter from hospitality business leaders to chancellor Rishi Sunak

Dear Chancellor,

The reduced rate of VAT that you introduced as part of the Plan for Jobs has been an incredible success, helping us to sustain jobs and businesses despite the ravages of the pandemic’s various waves. It has been critical in keeping prices affordable for our customers.

The pandemic highlighted how much the nation has missed hospitality and tourism, and the important part it plays in our lives. However, costs are increasing and our customers are feeling the pinch. The imminent return to a 20% VAT rate will exacerbate the squeeze on household finances.

The increase in input prices to hospitality businesses have been absorbed, largely through the headroom provided by the reduced VAT rate. As costs relating to labour, energy, and food and drink supplies continue to rise, the reduced rate is ever more important.

The reduced rate also bolsters deliverability of many of the government’s key policies – including levelling up, high street regeneration, employment and skills growth, and investment in net zero – allowing our sector to fully play its part in an economic recovery.

The government has rightly celebrated being the most open nation in Europe following the Omicron variant. As we look to revive our tourism, maintaining a reduced rate of VAT is imperative, as it simply brings us in line with the levels of VAT levied in our competitor European nations.

The policy has been a resounding success and is central to our sector and the nation’s economic recovery. We therefore implore you to maintain VAT at 12.5% and witness the hospitality sector rebound strongly and deliver jobs and growth around the country.

Yours sincerely,

Kate Nicholls, CEO, UKHospitality

+261 business leaders

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