Under Treasury plans, hospitality and tourism VAT rises from 5% to 12.5% today (1 October) and will return to its pre-pandemic level of 20% in April 2022.
Trade bodies UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping, Tourism Alliance and the Association of Leading Visitor Attractions are warning that unless VAT remains permanently low at 12.5%, the Government ‘risks derailing the recovery at a time when businesses are still in survival mode’.
Across the course of the pandemic, hospitality and tourism were the hardest hit sectors, with spend down £100bn, 12,000 businesses permanently closed and 660,000 jobs lost.
The trade bodies says that the reduction in VAT helped protect hundreds of thousands of jobs and allowed many businesses to stay open and serving customers when permitted to trade.
A survey of the trade associations’ members covering 815 businesses found that the reduced rate of VAT has been vital to operators, with over three-quarters (77%) stating it is important or crucial to viability.
Businesses will use the current reduced VAT rate for an array of productive purposes, including 6 in 10 who will invest in their businesses; keeping prices more affordable for customers; along with paying suppliers and creditors.
Similarly, if the reduced rate were to continue to apply beyond April 2022, 70% would use the saved costs to maintain business investment.
Returning VAT back to 20% in April 2022 would have serious consequences; 6 in 10 businesses said it would likely lead to cutbacks and job losses; with one in ten saying it could cause their business to close. The rise would also risk triggering price increases for consumers.
In a joint statement, the trade bodies said: “Businesses are at a perilous stage of their recovery after what’s been a devastating 18 months. Costs are increasing and there are numerous operational challenges for them to deal with, specifically around labour and product supply."
"A reduction in VAT has helped many of our businesses survive to this point and was most welcome. However, the return of VAT to its pre-pandemic level next year would curtail investment, restrict growth, set back our tourism recovery and risk yet more painful job losses."