An alliance of leading trade associations has undertaken a large-scale survey of businesses to establish the impact of an increase in VAT and the results don’t make pleasant reading for the government. Keep the rate down, they argue, or risk the recovery of hospitality around the UK.
Leading trade associations representing the UK’s hospitality and tourism sectors have joined forces to call on the Chancellor Rishi Sunak to introduce a permanent lower rate of VAT in order to help protect jobs and accelerate the UK’s economic recovery.
Under Treasury plans, hospitality and tourism VAT has risen to 12.5 percent from 1st October and will return to its pre-pandemic level of 20 percent in April 2022. A collection of influential trade bodies comprising UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping, Tourism Alliance and the Association of Leading Visitor Attractions – are warning that unless VAT remains permanently low at 12.5 percent, the Government risks derailing the recovery at a time when businesses are still in survival mode.
Across the course of the pandemic, hospitality and tourism were the hardest hit sectors, with spend down £100bn, 12,000 businesses permanently closed and 660,000 jobs lost. However, the reduction in VAT helped protect hundreds of thousands of jobs and allowed many businesses to stay open when permitted to trade.
A survey of the trade associations’ members covering 815 businesses operating tens of thousands of venues found that the reduced rate of VAT has been vital to businesses, with over three-quarters (77 percent) stating it is important or crucial to viability.
Businesses will use the current reduced VAT rate for an array of productive purposes, including 6 in 10 who will invest in their businesses; keeping prices more affordable for customers; along with paying suppliers and creditors.
Similarly, if the reduced rate were to continue to apply beyond April 2022, 70 percent would use the saved costs to maintain business investment.
Returning VAT back to 20 percent will, according to the survey, have serious consequences; 6 in 10 businesses said it would likely lead to cutbacks and job losses; with one in ten saying it could cause their business to close. The rise would also risk triggering price increases for consumers.
If VAT on tourism and hospitality were to remain at 12.5 percent, modelling suggests it would increase business turnover by an average of 8.8 percent and boost business investment by an average of 12 percent.
In a joint statement, the trade bodies said: “Businesses are at a perilous stage of their recovery after what’s been a devastating 18-months. 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 percent 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.”