During a Westminster Hall debate on yesterday (12 November), Financial Secretary to the Treasury James Murray acknowledged that a VAT reduction would benefit operators but warned of the significant cost to public finances.
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£11bn cost
Murray said HMRC estimated that reducing VAT on accommodation and food and beverage services from 20% to 10% would cost approximately £11bn annually, while a reduction to 15% would cost £5bn and a 12.5% rate would cost £8bn.
He said: “We recognise that reducing the rate of VAT would provide a benefit to affected hospitality businesses.”
However, he argued that the potential economic benefits would only partially offset the cost of a reduction, adding that any tax cut would need to be considered against its affordability.
Calls for targeted support
Labour MP Tonia Antoniazzi, chair of the Northern Ireland Affairs Committee and the All-Party Parliamentary Beer Group called for a four-year pilot reducing VAT to 10% on food, excluding alcohol, and accommodation in Northern Ireland.
She argued that the disparity between UK and Irish VAT rates was undermining the competitiveness of hospitality businesses operating across the border.
Meanwhile, Labour MP Brian Leishman warned that independent pubs were struggling to compete with larger operators, which benefit from greater purchasing power and are better placed to absorb rising costs.
Labour MP Dr Simon Opher also backed targeted relief for smaller hospitality businesses, arguing that a universal VAT reduction could disproportionately benefit major chains.
Responding to the calls, Murray reiterated the Government’s commitment to business rates support, including a 20% reduction for pubs from April 2027 and a two-year real-terms freeze for retail, hospitality and leisure properties in England.
He also highlighted changes to small business rates relief thresholds, which the Government estimates will remove approximately 70,000 additional retail, hospitality and leisure businesses from paying rates.
No further commitment to reducing hospitality VAT was made during the debate.
