Hope for VAT cut on pub food bills

Europe has given pubs a glimmer of hope that VAT on food bills for customers could be cut.

The European Commission proposes giving member states the right to permanently reduce VAT on certain services, including the supply of restaurants and catering services, to as low as 5%.

The aim is to help local and labour-intensive services provided by small businesses.

The move would soften the blow for licensees of rising food inflation, currently 13.7% year-on-year according to the consumer price index.

Some states can already have VAT reduced for food bills for limited periods until 2010 and the EC wants this expanded.

EC commissioner Laszlo Kovacs said: "There is no reason why restaurant services should be allowed to benefit from a reduced rate in half of the European Union, but not in the other half."

Ed Turner, operations director at food-led operator Geronimo Inns, said: "The problem with food inflation is that at the moment costs are going up while everyone's personal income is going down. If this can balance that out, then great."

A spokesman for the Federation of Small Businesses said: "We are pleased that restaurants and catering are included [in the proposal] and it should benefit the sizeable number of pubs

that concentrate heavily on food. National governments should be given more control over how they use VAT to stimulate demand."

A spokesman for the European Commission said: "The idea has to be agreed by the European Parliament and the European Council. It's at quite an early stage at the moment.

"These things can take 18 months or two years to come to fruition."