200 bosses urge Chancellor to permanently keep VAT at 12.5%

By Nikkie Thatcher contact

- Last updated on GMT

Government address: the letter outlines how the current 12.5% VAT rate benefits the industry (image: Getty/AnthiaCumming)
Government address: the letter outlines how the current 12.5% VAT rate benefits the industry (image: Getty/AnthiaCumming)

Related tags: Legislation, Vat, ukhospitality, Kate nicholls

More than 200 chief executives of hospitality businesses have signed a letter to the Chancellor ahead of the Budget this week (Wednesday 27 October), calling for the 12.5% VAT rate to be made permanent.

The letter states a permanent 12.5% VAT rate would put a stop to price rises for families, enable the industry to generate new jobs, support higher wages and better training, unlock capital to deliver a greener future, and allow businesses to remain globally competitive.

The trade leaders, which include bosses of companies such as Fuller's, Loungers, Mitchells & Butlers, Punch Pubs & Co, Rekom UK, Revolution Bars Group, Stonegate and Oakman, have added their support to industry association UKHospitality (UKH)’s #VATsEnough campaign.

Critical component

UKH chief executive Kate Nicholls said: “Hospitality is a critical component of the UK economy, with the potential to be at the heart of the Government’s plans to Build Back Better. We can support job creation, levelling up and the road to net zero – but we need the Government to come with us on our recovery journey.

“Under current plans, VAT returns to its pre-pandemic level of 20% next April, meaning higher prices for consumers just at the time when they can least afford it. For businesses it will undoubtedly set off an inflationary spiral which will undermine wage growth, hit demand and ultimately threaten jobs.”

She went on to outline how the planned increase of VAT back to 20% would take place when business rate relief ends.

Cliff-edge warning

Nicholls added: “It will come at the exact same time as we hit a a cliff-edge of the end of business rates reliefs on outdated valuations – currently hospitality pays 10% of the rates bill for an industry that generates around 3% of GDP. On top of this we’re facing a chronic labour shortage, supply chain issues, cost inflation across the board, and rises in the National Living Wage and National Insurance Contributions.

“Fundamental reforms are therefore crucial to the industry’s survival, a key part of which will be keeping VAT at 12.5% permanently. This will allow us to circumnavigate the monumental challenges we face and enable operators and their teams to concentrate time and resources on what they do best - driving economic growth and serving their communities.

“Longer term, there is no doubt that a return to the higher rate of VAT will prevent the industry playing its full part in the Government’s levelling up agenda and in delivering its commitment to focus on good work, better skills, and higher wages. That is why it’s vital the Chancellor must keep VAT permanently at 12.5% for our sector.”

Dear Chancellor,

We know you appreciate just how challenging the past 18 months have been for hospitality and tourism across the UK. Without your ongoing support many more businesses would have gone bust and many more people would have lost their livelihoods.

We continue to benefit from a reduced rate of VAT currently at 12.5%. This is without doubt the most important factor in helping us rebuild our businesses and allowing us to play our full part in delivering your agenda “focused on good work, better skills, and higher wages.” Hospitality is a critical part of the UK economy, previously representing one in ten jobs and contributing £40 billion in taxation.

A reduced rate of VAT for hospitality and tourism allows our businesses to remain globally competitive and help halt price rises for hard working families. It enables us to generate new jobs and invest in our people, with higher wages and better training opportunities. It empowers us to help deliver your ambitions to ‘level up’ our high streets and communities, where our businesses bring people together. It equips us to help deliver a greener future, unlocking capital to speed up our programme of decarbonisation.

All of these need to be delivered on an ongoing basis, not just in the short term, and that is why we are asking you to make the 12.5% rate of VAT permanent. A rise in the VAT rate to 20% next Spring will hit families and workers hard when they can least afford it and will come on the eve of the UK celebrating major cultural and sporting events of international importance like the Platinum Jubilee and the Commonwealth Games.

There are other concerns for the sector – not least the outcome of the fundamental business rates review that Government has committed to, the tax burden from April 2022 and labour shortages. We fully endorse the submission made to your department from UKHospitality that outlines the broader context in which we operate and how the investment that we can collectively make will deliver for the whole nation.

With your support we can help realise your ambitions for this great nation together.

Related topics: Legislation

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