Industry leaders call on government to cut VAT to curb inflation as Chancellor promises to cut tax for businesses in the autumn budget

JD Wetherspoons founder Tim Martin and president of the National Federation of Fish Friers, Andrew Crook, are among a number of industry leaders to have called on the government to cut VAT in light of the astronomical levels of inflation sweeping the country 

Current inflation levels hit a 40-year high of 9 percent last month, driven by the jump in electricity and gas prices when energy price caps were lifted in April.

Tim Martin said: “The government’s decision to return VAT to 20 percent in April has affected the entire hospitality industry and is a contributory factor in the rise in inflation."

"It does not make economic sense that food bought in pubs, restaurants and cafes attracts VAT of 20 percent, when food is VAT-free in supermarkets. The argument is even more valid now as the increase in VAT from 12.5 percent back to 20 percent in April has been one of the factors in the increased rate of inflation.”

Inflation levels unprecedented but not unexpected

According to the Office of National Statistics (ONS), the rise from 7 percent in March has caused an estimated £700 increase in the cost of utilities for the average household. 

It was reported by BusinessMatters that Grant Fitzner, the ONS’s chief economist, said: “Around three-quarters of the increase in the annual rate [of inflation] this month came from utility bills." 

Greater Manchester's night-time economy advisor, Sacha Lord, remarked that the inflation levels may be unprecedented but they are not unexpected.

"The economic impacts of the past 24 months, from Brexit, the Covid pandemic and the terrible atrocities in Ukraine, have not only exacerbated weaknesses but have put the true instability of our economy on stark display," he said.

"Businesses across the board are struggling and I know many who are making tough decisions on how and whether to survive. Some in hospitality are seeing energy bills rise to six, seven and eight thousand pounds per month, and this level of payout for businesses recovering post-pandemic, is simply unsustainable."

Neil Manhas said: “These inflation figures call for more detail on how the government plans to tackle inflation and ease economic pressures on the hospitality industry, as we await a likely double-digit inflationary pressure across most aspects of our supply chain."

Neil also remarked that while not everyone will be as negatively affected by the inflation rise, "small and independent businesses" are the most likely to struggle and need rapid help, adding: "The key to resolving our economic difficulties is achieving nationwide growth, and hospitality is instrumental to this.”

Andrew Crook, president of the National Federation of Fish Friers, told Propel: "It’s not a handout we want, we want a fairer system that supports the very businesses we need for the future."

"We want to help the economy grow and the government’s levelling up agenda, and the hospitality sector can play an important role in that. Our businesses are not just jobs, it’s a way of life and all of the work we have done over the years to modernise and professionalise our iconic but fragmented industry is now at risk.”

The Government's response

In a bid to reassure businesses that the government is doing what it can to protect their ability to prosper and contribute to the UK's economic recovery, Chancellor Rishi Sunak has vowed to cut taxes for businesses later this year while surging inflation levels threaten to plunge the UK into a recession.

At the annual dinner for the Confederation of British Industry on Wednesday, May 18th, he reassured firms that "we are on your side."

However, Andrew Crook, president of the National Federation of Fish Friers, told Propel: “We don’t think a temporary cut goes far enough and we are asking government for a long-term strategy for hospitality. We are seeing businesses fail at an increasing rate."

"The current VAT system means the pressure is on a large proportion of my members who provide quality jobs and training, invest in their businesses and operate in an ethically and environmentally sound manner. All of these things put more financial burden on these businesses than others who do not and without change, these businesses that lead my industry are the ones at most risk.”

As well as listing measures in place to tackle inflation and support people into better-paid jobs, the Chancellor set out the government's three-point plan to address the cost of living crisis, boost growth and stimulate investment. Potential measures include a 1p income tax cut from the autumn - or indeed, a potential VAT cut.

Calling on business to help increase productivity and enterprise, he said: “We need you to invest more, train more, and innovate more. In the autumn Budget, we will cut your taxes to encourage you to do all those things. That is the path to higher productivity, higher living standards, and a more prosperous and secure future.”