Nearly a quarter of hospitality businesses in the UK are losing money, according to new industry data, reigniting calls from chefs, pub owners, and restaurateurs for a reduced VAT rate. The sector, still reeling from the pandemic, faces soaring energy costs and policy-driven expense increases.
Financial Strain on Hospitality Venues
Industry research commissioned by trade bodies reveals that one in six hospitality venues fear they will not survive until the end of the year. Additionally, 5% of businesses report they are no longer financially viable. The cumulative effect of the pandemic, Russia's invasion of Ukraine, and the closure of the Strait of Hormuz has driven energy prices sky-high. Since Labour took office, increases in employers' national insurance contributions and the national minimum wage have added £5 billion annually to sector costs.
The VAT Cut Campaign
The "VAT's the problem" campaign, led by celebrity chef Tom Kerridge, advocates cutting hospitality VAT from 20% to 10%. This would align the UK with most European countries: Germany charges 7%, while France, Italy, and Spain levy 10%. On Wednesday, the Republic of Ireland will lower its rate for food-led businesses to 9%. Over 240,000 people have signed a petition supporting the cut, with venues aiming to collect 1 million signatures.
Ravneet Gill, owner of the chophouse bistro Gina in Chingford and a Junior Bake Off judge, said paying 20% VAT leaves her profit margins "tiny." She added, "If we just had that little bit of a load lightened, we could increase the workforce, we could train new people up, but at the moment, everyone is so conservative about hiring anybody, which is very worrying."
Political Support and Opposition
Andy Burnham, widely expected to be the next prime minister, previously backed a 10% hospitality VAT cut. However, in a recent economic speech, he did not mention VAT but promised to "reform business rates" to support high street businesses like pubs, calling them "a symbol of Britain's renaissance." Nick Mackenzie, CEO of Greene King (which operates about 2,700 pubs, hotels, and restaurants), welcomed the shift in tone: "It makes you realise that some senior politicians understand that hospitality is important to this country, not just economically, but the social value and the wellness that it creates within communities."
However, critics argue against the VAT cut. HMRC estimates a 10% reduction would cost the government £10.5 billion, while the thinktank Tax Policy Associates (TPA) puts the figure closer to £12 billion. TPA founder Dan Neidle said, "It's a hugely expensive and inefficient tax cut, and the evidence shows that most of the benefit will be retained by large businesses to boost their profits." For example, McDonald's would retain an extra £432 million. Neidle believes the money could be more efficiently spent to drive growth.
Alternative Solutions
TPA suggests that changes to business rates, as promised by Burnham, would be a better starting point. Rates are linked to property values, often making them unsustainable for hospitality venues. While Chancellor Rachel Reeves has sought to mitigate this, broader reforms could be transformative. Reversing the national insurance contribution increase, described as a tax on jobs, could also help venues invest in staffing. Gill expressed a desire to train and hire more young people, saying, "I love the high street and I want it to look a bit more fruitful than it does."
