Cross-industry call for permanent lower VAT rate

By Miriam Balanescu

Published: 04 October, 2021

Following the recent call from The Wine & Spirit Trade Association (WSTA) for the Treasury to extend the hospitality VAT reduction, leading trade bodies from the hospitality and tourism sector have aligned to add their voice to the plea.

During the pandemic, VAT has been eased to allow businesses to recover from industry closures. With current surging energy costs and fuel prices, recovery remains uncertain for the hospitality and tourism sectors.

In line with Treasury plans, VAT has now increased to 12.5%, with the rise enacted from 1 October. A full increase to pre-pandemic levels (20% VAT) is expected to commence in April 2022, during the sector’s peak season.

Taking urgent action, the trade bodies UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping, Tourism Alliance and the Association of Leading Visitor Attractions have united to request that Chancellor Rishi Sunak keep VAT at a permanently lower rate.

The leading trade bodies warn that the tourism and hospitality sectors have been the worst struck during the pandemic – spend has decreased by £100bn, 12,000 businesses have been permanently closed and 660,000 jobs have been lost.

A survey carried out by the trade associations of their members, spanning 815 businesses and tens of thousands of venues, found that 77% of businesses claimed that reduced VAT had been essential to their financial survival.

From those surveyed, 60% stated that they would utilise current reduced rates productively, including investing in their businesses, ensuring prices are affordable for customers and paying suppliers and creditors. If reduced rates continued beyond April 2022, 70% claimed they would use saved costs to maintain business investment.

Meanwhile, 60% stated that a full return to pre-pandemic levels of VAT would lead to inevitable cutbacks and job losses. Some 10% responded that, as a direct impact of increased VAT, their business would be forced to close.

Analysis carried out by the trade bodies has suggested that if VAT were to remain reduced at 12.5%, business turnover would increase by an average of 8.8% and business investment would be bolstered by an average of 12%.

In a joint statement, the trade bodies commented: “Businesses are at a perilous stage of their recovery after what’s been a devastating 18 months. Costs are increasing and there are numerous operational challenges for them to deal with, specifically around labour and product supply. A reduction in VAT has helped many of our businesses survive to this point and was most welcome. However, the return of VAT to its pre-pandemic level next year would curtail investment, restrict growth, set back our tourism recovery and risk yet more painful job losses.

“We’re now calling on the Chancellor to commit to introducing a permanent 12.5% rate of VAT in his upcoming Budget, later this month. This will help protect jobs and continue the support for our hospitality and tourism businesses which contribute hugely to the nation’s economic and social wellbeing.”

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