VAT cut to 5% could create 670,000 UK jobs

A survey of the clubs 43 pub, restaurant and hotel operators members, found that they would pass on more than 50% of any VAT reduction in lower prices, creating increased customer traffic of between 10 and 12%.

The savings would also be used by operators to increase staff pay, as well as increase investment levels and training.

The research also found that the Treasury would see an initial loss of between £5.5 billion and £7.8 billion as a result of reducing VAT to 5% in the sector.

However, the losses reduce sharply as employment generation produces increased tax receipts, businesses in the sector pay higher tax receipts and the ‘black economy’ shrinks – also 60% of jobs created would be among those previously unemployed.

The report states: “Under certain potential scenarios, the overall impact of the dynamic stimulus that a VAT reduction would give to sector growth would be fiscally neutral. In other words, the indirect gains to the Exchequer could offset the direct loss in VAT yields.” 

Jacques Borel said: “The study shows that a targeted VAT reduction to 5% in the hospitality sector would be a very powerful and cost-effective way of creating employment in the UK. There would be an initial loss of revenue to the Treasury but, as many other countries in Europe have discovered, the losses are quickly reduced – and even made neutral – as the sector grows turnover and creates jobs.”

A total of 13 of the EU’s 27 countries already apply a reduced rate of VAT to out-of-home foodservice.

Borel added: “The UK should follow the lead of its European neighbours in boosting its economy and creating employment, particularly among the young, many of whom already begin their careers in the leisure sector.”