Hospitality venues warn of steep price rises to combat VAT increase

Hospitality businesses have warned they will be forced to dramatically raise prices to combat a return to 20% VAT next month.

But operators are worried inflation will mean customers have less disposable income to afford to eat and drink out or stay in hotels.

It comes after chancellor Rishi Sunak’s spring statement disappointed the industry by failing to stop hospitality and tourism VAT rising from 12.5% to its pre-pandemic rate of 20% in April.

Serena von der Heyde, owner of the Georgian House hotel in London and Victorian House hotel in Grasmere, told The Caterer: “We’ll have to increase our prices now. We know that when we do that we’re going to get fewer bookings, so that’s not helpful.”

She added: “I cannot see that customers will be able to [keep paying] what they’re used to for their meal out at the pub or special occasion or night away. People are going to have to pay more.

“Households already have so many other costs, it’s going to have a very bad affect on the hospitality industry because people won’t have disposable income and will find it prohibitively expensive.”

Restaurateur Andy Lennox predicted customers were going to see a “massive hike” in prices over the next week.

He said: “I’ve just sent [a new menu] to the printers. [The VAT rise] means a 10% price increase as a bare minimum just to help businesses stand still.

“We’ll get flack from the customer and have to explain that we’re not making money, we’re losing money and our margins are cut even more.

“For too long hospitality has been scared, and rightly so, of alienating our consumer. Pricing has not kept up with the market. Now we’re in a position where there are big hikes that need to be made which [operators] don’t want to do, it’s really difficult.”

Pizza Hut UK and Ireland said extending the VAT cut would be a “crucial buffer” for the business without which it would have to pass on costs to consumers.

Ronan Harte, chief executive of BaxterStorey, said the workplace hospitality provider was concerned the increase could slow its recovery: “[With] the cost of living on the rise and consumer spending likely to suffer as a result, failure to do more to support hospitality bosses may impact this upwards trajectory and leave the industry struggling to invest and forward plan.”

The VAT hike comes ahead of the rent moratorium ending on 25 March, which Lennox predicted would result in a further raft of closures. He said: “I think a lot of people relying on that 12.5% VAT [to survive] will throw in the towel.

“VAT at 20% has always been an unfair tax and it’s frustrating that we’re back to that.”