Hospitality and tourism bosses are pleading with the government to permanently lower the VAT rate on companies in their sectors to help safeguard thousands of jobs.
The lure comes as the tax rate for pubs, restaurants, vacation accommodations, and admission to certain attractions increases to 12.5% on Friday, following a temporary cut to just 5% that was introduced in July 2020 to help to companies fighting the pandemic.
Under current Treasury plans, VAT on purchases from the hotel and tourism sector will rise again to the pre-pandemic level of 20% in April next year.
A coalition of the UK’s largest tourism and hospitality bodies warned the Chancellor on Friday: Rishi Sunakthat returning the rate to 20% “runs the risk of derailing the recovery at a time when companies are still in survival mode.”
“The companies are in a dangerous stage of their recovery after what has been a devastating 18 months,” the trade bodies said in their joint letter. “Costs are increasing and there are numerous operational challenges they must face, specifically in regards to the supply of labor and products. A reduction in VAT has helped many of our companies survive to this point and was very welcome.
“However, returning the VAT to its pre-pandemic level next year would reduce investment, restrict growth, delay our tourism recovery and risk even more painful job losses.”
The letter was signed by the directors of UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping, the Tourism Alliance and the Top Visitor Attractions Association.
“We are now asking the chancellor to commit to introducing a permanent VAT rate of 12.5% in his next budget, by the end of this month,” they wrote. “This will help protect jobs and continue to support our hospitality and tourism businesses, which greatly contribute to the economic and social well-being of the nation.”
Hotel industry leaders said their sector had been the hardest hit in the economy, with a collective revenue drop of £ 100bn. They said 12,000 businesses had closed permanently as a result of the pandemic and 660,000 people had lost their jobs in the industry.
A survey of more than 800 member companies found that 77% thought that the reduction of the VAT rate was “important or crucial for viability”, while 60% said that if the VAT rate increased to 20% in April, they would have to cut jobs. and one in 10 companies said they would likely close completely.
Kate Nicholls, UKHospitality CEO, said: “With the right support and conditions, the sector has the potential to be at the forefront of economic recovery.
“In order to drive further job creation, we urge the government to implement long-overdue trade rate reform and a permanently lower VAT rate for hospitality and tourism to help fragile businesses recover. “.
Businesses are warning consumers to expect price increases starting Friday as they pass the cost of the tax and other rising costs onto consumers.
Sacha Lord, the Greater Manchester night economy advisor and co-founder of the Parklife festival, said he expected drink prices in pubs to rise 7-10% as a result of the change.
A survey by the pub trade newspaper The Morning Advertiser found that 63% of innkeepers expected to increase their prices.
JD Wetherspoon has said he will increase the price of his food by 40 pence per meal starting Friday to reflect the VAT change. The chain, which has 860 pubs, said VAT went up “It would make the entire hotel industry less competitive”.