The letter, spearheaded by UKHospitality (UKH), highlighted the success of the lower rate VAT in helping businesses survive “the ravages of the pandemic”. It also stated the policy has allowed businesses to keep their prices as low as possible in the face of significant cost pressure to the sector.
UKH chief executive Kate Nicholls said: “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.
The current rate of 12.5% will rise to 20% come April unless the Chancellor Rishi Sunak intervenes.
“It is vital, in the interests of competitiveness, job creation, growth and ensuring hospitality and tourism play their full part in driving the economic recovery”, said Nicholls.
Feeling the pressure
Signatories to the letter include individual businesses, SMEs and huge multi-national enterprises, including JD Wetherspoon, Marston’s, Punch Pubs and Rekom.
If VAT were to rise in March, businesses would be forced to significantly raise their prices, putting pressure on the cost of hospitality experiences and fuelling inflation across the economy.
UKH has also urged the Government to keep the lowered VAT in order to limit inflation. In a recent study of its members, 93% of companies said they would increase prices by 11% in the coming months- double the headline rate of inflation in December 2021.
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 the sector would feed into a rise of 1.7 percentage points to the headline rate of inflation over the next 12 months.
Nicholls said UKH was asking the Chancellor to give companies and consumers “room to breathe”, after a challenging two years where hospitality was hit first, hardest and longest.
Borne the brunt
“This industry has borne the full brunt of the economic restrictions due to Covid,” said Nicholls.
She added: “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”.
A recent study conducted by UKH, the British Beer & Pub Association, the Tourism Alliance and the Association of Leading Visitor Attractions revealed massive benefits if the current VAT rate is retained.
The report showed a permanent rate of 12.5% would bring VAT on hospitality and attractions in line with the European average (at 20% it is nearly double) and set off a cycle of industry investment and growth to help ‘level up’ UK regions.
The study found that a reduced VAT rate would create 286,850 jobs across ten years, would generate £7.7bn of additional turnover across ten years, and would deliver £4.6bn in net present value of fiscal gains to HM Treasury over ten years.