Why does hospitality need help?

Pubs, bars, restaurants, nightclubs and hotels were among the hardest-hit businesses during the Covid-19 pandemic, when thousands of venues were forced to close. Energy prices have soared, first as a result of Russia’s invasion of Ukraine and more recently owing to the closure of the strait of Hormuz.

Policy decisions, chiefly the increase in employers’ national insurance contributions and the national minimum wage, have added £5bn a year to the sectors’ costs since Labour took office.

Nearly a quarter of businesses in the sector are losing money, according to fresh data commissioned by industry trade bodies. One in six fear they won’t last the year and 5% say they are no longer financially viable.

In short, things are pretty grim.

What does the sector want?

The “VAT’s the problem” campaign, spearheaded by the celebrity chef Tom Kerridge, is calling for hospitality VAT to be cut from 20% to 10%. Countries across Europe have a lower VAT with Germany at 7% and France, Italy and Spain all at 10%.

On Wednesday, the Republic of Ireland will lower its rate, for food-led businesses, to 9%.

At the time of writing, more than 240,000 people have signed the petition showing wide support of the proposed cut. Venues will roll it out to their customers this week, in the hope of amassing 1m signatures.

Ravneet Gill, a Junior Bake Off judge who owns the chophouse bistro Gina in Chingford, said paying 20% VAT meant her profit margins were “tiny”.

“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,” she said.

Is it likely to happen?

Andy Burnham, widely expected to be the next prime minister, has previously backed a 10% decrease in hospitality VAT to help support restaurants and pubs. However, in a speech laying out his economic vision on Monday, Burnham didn’t mention it. Instead, he promised to “reform business rates” to support high street businesses, such as pubs, as a “symbol of Britain’s renaissance”.

While Burnham seems to have gone quiet on VAT, Nick Mackenzie, the chief executive of Greene King, which operates approximately 2,700 pubs, hotels and restaurants, is enjoying the mood music.

“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 around the country.

“Anyone who gets that, if they become prime minister, can then deliver on some of the promises around business rates and VAT that they’ve made,” he said.

But not everyone thinks a VAT cut is a good idea.

What are the counter-arguments?

HMRC estimates that the proposed 10% cut would cost the government £10.5bn. The thinktank Tax Policy Associates (TPA) estimates the actual cost could be closer to £12bn and has set out a robust argument for why that may not be a wise use of taxpayers’ funds.

The biggest immediate beneficiary would be big businesses, many of them multinational, according to a TPA report. The fast-food chain McDonald’s would retain an extra £432m.

Dan Neidle, the thinktank’s founder, thinks that the money could be more efficiently spent to drive growth. “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,” he said.

Nick Mackenzie disagreed, saying the economic benefits would be felt rapidly. “This industry creates investment and jobs, particularly for young people, at a pace that I think no other industry does.”

What else might help?

TPA thinks changes to business rates, a Burnham promise, would be a better starting point. Rates are linked to property values, meaning hospitality venues often end up paying unsustainable rates. While the chancellor, Rachel Reeves, has sought to mitigate this, broader-scale rate changes could be transformative for the sector.

A reversal of the national insurance contribution increase, which has been described as a tax on jobs, could also help venues invest in employing more staff.

Gill said: “We really want to train and hire more people because where we are, we have this amazing local community of kids who don’t want to go to university, we would happily take them on. I want to hire them, I want to train them.”

“I love the high street and I want it to look a bit more fruitful than it does.”