An inquiry by the All Party Parliamentary Group (APPG) has concluded that VAT should not return to 20 Percent for hospitality and tourism in April

The APPG enquiry cited UKHospitality data revealing that the lower rate would bring a number of benefits to the industries, including jobs, international competitiveness and social well-being.

The enquiry focused on key areas in which the 12.5 percent VAT would benefit the sector - namely, supporting the viability of businesses, improving the rate of employment, and easing the cost of living pressures, which it would do by limiting inflation through lower prices, concluding that "across every area, the inquiry found a substantial case for retaining the current 12.5 percent rate of VAT and, thus, the APPG recommends this policy remains in place beyond March.”

Also cited in the enquiry was a UKHospitality member survey showing that nine out of ten businesses believe retention of the 12.5 percent VAT to be crucial to their recovery.

The British public supports an extension of the 12.5 percent VAT rate

The outcome of the enquiry comes as little surprise, especially given that a recent YouGov poll found that just one in five people (17 percent) supported the return to 20 percent VAT.

What's more, almost three-quarters of the 1,743 respondents (72 percent) believe the government should play a more central role in the sector's economic recovery, as 92 percent of respondents reported rising costs of living in the past two years. Two-thirds of those respondents (67 percent) said that they are cutting back on meals out as a result. 

Other figures published in the APPG report that all but one region of the UK employs more than 650,000 people in hospitality and that domestic tourism was “the largest form of non-governmental redistribution of wealth in the UK,” with £25bn flowing annually from urban to rural and seaside economies.   

This report comes after a petition started by Andy Lennox campaigning for the VAT freeze only received 5,664 signatures and offers the support the campaign needed to possibly tip the balance in the industry's favour.

Tackling inflation

The APPG report revealed strong evidence in support of the VAT to remain at its current rate of 12.5 percent beyond April and the YouGov study showed a good deal of public support for the same thing.

This will help restrain rampant inflation, which is expected to peak at more than 7 percent in the spring, sparking fears of a cost of living crisis across the UK.

Along with that, Yawar Khan, chairman of the Asian Catering Federation, warned chancellor Rishi Sunak that the proposed return to 20 percent VAT will be the “final nail in the coffin” of many hospitality businesses.

Given that the UK already has one of the highest rates of tax for food and accommodation in Europe, with France and Spain's VAT rate set at 10 percent and Germany and Belgium's even lower at 7 and 6 percent respectively, it is clear that the high rate of VAT is not a global standard nor is it necessarily beneficial.

'There is now a very strong case for the government to use the next budget to deliver the vital support that these surviving and indebted businesses need'

Commenting on the YouGov study, the chief executive of UKHospitality Kate Nicholls said, “After two extremely challenging years and, with the unfolding cost-of-living crisis, there is now a very strong case for the government to use the next budget to deliver the vital support that these surviving and indebted businesses need, to protect jobs and defend the current fragile recovery. 

"Holding VAT at 12.5 percent will provide vital support for thousands of small, local, community businesses. It will protect jobs at a pivotal moment for the recovery. Extending the existing VAT rate will help hospitality operators to hold down their prices, secure jobs and will help keep a lid on inflation.”

This is a sentiment supported by 261 hospitality Business leaders, who recently penned a letter to Chancellor Rishi Sunak, urging the government to continue the lower VAT level, warning that a rise to 20 percent would “exacerbate the squeeze on household finances."

In December last year, restaurateur and night-time adviser for Greater Manchester, Sacha Lord, launched his campaign 'Axe the Red Wall Tax.' At the time, Sacha stated that it could lead to "job losses of up to 120,000" should they jump up for the 5 per cent VAT of lockdown to 20 per cent VAT only 6 months later. Even though the rapid increase was stalled, it is now feared that the jump from 12.5 to 10 percent could still cause a lot of damage to the industry.

On the APPG inquiry, Kate added: “For businesses to provide the best possible service, they need to return to financial strength. We welcome this report from the APPG on Hospitality and Tourism, which highlights the importance of keeping VAT at 12.5% to achieve this.”