Hospitality industry warns more venues will close without a VAT cut

Hospitality operators hit by “horrendous” quarterly VAT bills have warned more venues will close unless the government cuts the tax.

VAT on hospitality returned to its pre-pandemic rate of 20% in April after it was temporarily lowered during 2020.

Restaurant owners and hoteliers have described facing huge bills while struggling with rising food, energy, and wage costs.

Paul Askew, owner of Liverpool’s Art School and Barnacle restaurants, told The Caterer cutting VAT was “the single most important thing” the government could do to help the industry.

He said: “[The government] must do it now. Prices are rocketing, wages are rising, every commodity I know is going up. Gas bills are still increasing from around £700-£800 a month to now around £2,000 a month. That’s someone’s salary. What’s going to happen is people are going to start getting laid off and lose their jobs.”

Askew said he had previously hosted Conservative leadership candidate Liz Truss at his restaurant during the G7 summit in Liverpool in 2021 and had written to her office “begging” for a cut in VAT. He suggested this could be to around 10% to put the UK in line with much of Europe.

Hotels struggling

Raphael Herzog, chair of the Bristol Hoteliers Association (BHA), said some hotels had seen their gas bills rise from £10,000 - £12,000 a month to around £50,000 and called on the government to introduce either a temporary or permanent VAT cut.

He said: “Whereas a quality steak would cost £5.50 not too long ago, it now costs £10. We’ve seen year-on-year price increases of nearly 40% for bakery/flour purchases, more than 60% for dairy, more than 45% for eggs and egg products and 20% for laundry.

“These are just a few examples of the soaring costs we are facing and why we are calling for long-term government help.”

Charlotte Bennett, director of the Healing Manor Hotel near Grimsby, said the return to the 20% VAT rate meant there was now a difference of tens of thousands of pounds between gross and net sales which was having a “big impact” on cash flow.

She added that staffing costs were “through the roof” and the price of eggs, bread and dairy were changing daily, but increases could not be passed on to customers.

“[A] VAT reduction currently seems like the only viable and likely option to release some of the mounting pressures from businesses within our sector,” said Bennett.

Trade body UKHospitality last week called for the government to set out a plan of action to help businesses with costs after interest rates rose from 1.25% to 1.75%.

A Treasury spokesperson said: “We’ve stood behind the hospitality sector throughout the pandemic with £400b package of economy-wide support that saved millions of jobs.

“And at the Spring Statement we went further, announcing a £1,000 increase to the Employment Allowance which will cut taxes for hundreds of thousands of businesses.

"Eligible high street businesses also get 50% off business rates bills and benefit from a freeze to the business rates multiplier, which puts the brakes on bill increases and is worth £4.6 billion over the next five years.”

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