UK Hospitality Sector Calls for VAT Cut as Quarter of Businesses Report Losses

Nearly a quarter of UK pubs, bars and restaurants are losing money, according to new survey data that came as a group of celebrity chefs and business owners stepped up their campaign for a sector-specific VAT cut.

Spearheaded by chef Tom Kerridge, leading figures in the hospitality sector are calling for VAT on the industry to be cut from 20% to 10%.

Under the banner “VAT’s the problem”, the campaign will be publicly launched from Wednesday in the hope of convincing visitors to venues across the country to sign a petition backing the reduction.

Labour’s decision to increase employers’ national insurance contributions and the national minimum wage, coupled with soaring inflation and energy costs, have piled pressure on a sector operating on threadbare margins.

But the industry is focusing its efforts on securing a VAT cut, estimated to cost the Treasury between £10.5bn and £12bn, a policy that has received tentative backing from Britain’s prime ministerial hopeful, Andy Burnham.

In a joint statement, a group of trade bodies representing the sector highlighted the “devastating impact” of taxation.

Survey data commissioned by the industry group indicates that 23% of respondents are losing money, a significant jump from 15% at the last checkup three months ago. One in six businesses said they run the risk of going bust inside 12 months; while 5% said they are not financially viable.

“Our hospitality culture in the UK is the best in the world, but we continue to be hit with unfair levels of tax,” said Kerridge, who has six venues and three Michelin stars.

The UK rate on food and drink service is higher than counterparts in Europe, where the average is 12.8%.

France, Spain and Italy all charge 10%, Germany charges 7% and the Republic of Ireland is due to lower the rate for food-led businesses from 13.5% to 9% on Wednesday.

“Almost every other country recognises the need to support hospitality with a lower rate of VAT,” said Kerridge, who is backed by figures including Wahaca founder Thomasina Miers and Nick Mackenzie, the chief executive of 2,700-venue pubs chain Greene King, and chef-restaurateur Ravneet Gill.

Despite broad support for a VAT cut within hospitality, the proposal has met with scepticism from the independent thinktank Tax Policy Associates, which warned that it would mainly benefit big businesses and that £12bn could be better spent to spur growth.

Burnham has previously indicated that he would support a reduction, although he did not mention it in a speech on economic priorities delivered on Monday.

Pointing to the survey data, the trade bodies said VAT would be the “most impactful” way to address the problem.

“The reality is stark,” they said.

“The number of businesses now operating at a loss is accelerating rapidly and too many businesses are facing the gut-wrenching decision of whether they have to close their doors for good.”

“The government needs to act to back hospitality and reduce its tax burden.”