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UK Hospitality: VAT increase ‘missed opportunity’

The UK hospitality industry has expressed disappointment at the chancellor’s decision to end the 12.5% VAT rate, which will ‘jeopardise’ jobs.

Rishi Sunak UK Hospitality
UK chancellor Rishi Sunak

By Melita Kiely

UK chancellor Rishi Sunak announced his spring statement yesterday (23 March).

Trade body UK Hospitality had been urging the chancellor to freeze VAT at 12.5% to protect ‘fragile jobs and businesses’ as they recover from the Covid-19 pandemic.

It described the return to 20% VAT as a ‘massive missed opportunity’ to help the UK’s post-pandemic economic recovery.

Kate Nicholls, chief executive of UK Hospitality, said: “This is a real setback for thousands of UK hospitality businesses still suffering the devastating effects of Covid, and facing a tidal wave of rising costs.

“For many businesses, the removal of the lifeline of a lower rate of VAT might prove fatal. For a heavily, disproportionately taxed sector, a return to 20% dashes the hopes that many businesses could begin to recoup some of the losses of the last two years.

“Locking in VAT at 12.5% would have given hospitality businesses a major boost, and helped the sector in its ambition to lead the UK back to post-Covid prosperity. As it is, thousands of jobs could be lost, the UK will remain uncompetitive versus international rivals, and already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation.

“Despite today’s disappointment, UK Hospitality will continue to work closely with the government to achieve the best possible trading conditions for the hospitality industry – which remains the sector best placed to turnaround the economy – and is buoyed by recent support for our 12.5% VAT call from a significant number of MPs.”

Nevertheless, the trade body did note reasons to be optimistic following the chancellor’s statement.

Nicholls added: “The reform of the apprenticeship levy, to focus on improving productivity, is something on which we have lobbied the government for five years or more and will be widely welcomed by our sector.

“Additionally, the generous increase in the NIC [National Insurance contribution] threshold for employees is a very positive move and will boost disposable income, although extending that measure to employers would help hospitality businesses to recruit and retain talent.

“In short, the longer-term measures in the chancellor’s statement will be positive for those businesses equipped to survive the coming months. However, the opportunity – primarily through retaining VAT at 12.5% – to help more vulnerable hospitality businesses navigate their way through to the autumn has sadly been missed.”

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