Reduced VAT 'absolutely necessary' for pubs’ survival

25-Oct-2021 - Last updated on 25-Oct-2021 at 10:00 GMT

Business survival: A continuation of reduced rates will attract more staff and customers said Orme (Getty/ sturti)

A continuation of reduced the VAT rate at the Budget this Wednesday 27th October will draw in customers and staff to the hospitality industry, said the director of pub the Red Lion in Shepperton, Surrey.

VAT was reduced to 5% in July 2020, then rose to 12.5% in October 2021, and is currently due to return back to 20% in April 2022.

Steve Orme called for Chancellor Rishi Sunak to keep the lowered VAT rate at the 2021 Budget. He said the reduction of VAT in lockdown was “absolutely needed” to help many businesses survive.

He said: “Many industries, our included, were decimated by the closures and the lockdowns, and reducing that VAT rate has allowed us to just retain a little bit more cash.

“[…] If the VAT hadn’t reduced, I would have had to increase my prices. Because it hasn't, I've managed to hold them steady which has been more attractive to people.”

Rising prices

With the UK’s energy prises currently rising, Orme stated that the last thing a business wants to do is put their prices up, as this could “scare off any customers”.

He added: “If you don't do that, you will fail anyway, because unless you take the right sort of margin out of a product, you're not going to be able to pay for the rent, and the rates and electric and all of these things.

At a time when the hospitality industry is so short-staffed, a continued reduced VAT rate will help attract high-quality staff, Orme continued.

He said: “The reduced VAT rate, allows us to take more money out of each sale, which allows us to then redeliver that back to the higher wages we have to pay.”

Wake-up call

According to the director, there will be a “huge reality check” come April when the measures stop. He said: “There are people currently overpaying because there is such a shortage [of workers]. It is driving wages up so fast.”

“If you look at the reality of April, what you'd actually be retaining from each sale, it will be a lot less than what it is today.

“Once the VAT goes back, and once the corporation tax comes back on, you won't have so much money on the bottom line. It's going to break a lot of businesses.”

Orme continued: “All we're doing with this cash we're retaining is paying higher wages, which surely the nation wants, which then they get the income tax back off of anyway.

“So, it's moving income tax, and everyone has a better standard of living.”

“Surely that’s a win-win, isn't it?”