Key facts
- 23% of UK pubs, bars, and restaurants are currently losing money.
- This is up from 15% three months ago.
- One in six businesses risk insolvency within a year.
- Industry figures are advocating for a VAT cut from 20% to 10%.
- The UK's VAT rate on hospitality is higher than in many European countries.
New survey data reveals that nearly a quarter of pubs, bars, and restaurants in the UK are currently operating at a loss, a significant increase from previous months. This financial strain is prompting a campaign, led by prominent figures like chef Tom Kerridge, to urge the government to reduce the Value Added Tax (VAT) on hospitality services from 20% to 10%.
The campaign, under the slogan "VAT’s the problem," highlights that 23% of surveyed businesses are losing money, up from 15% in the last quarter. Furthermore, one in six businesses fear insolvency within the next year, and 5% are deemed not financially viable. Industry leaders attribute these difficulties to increased national insurance contributions, rising minimum wages, soaring inflation, and high energy costs.
Supporters of the VAT cut argue that it is the most impactful measure to support the struggling sector. They point out that the UK's hospitality VAT rate is considerably higher than the European average of 12.8%, with countries like France, Spain, and Italy charging 10%. The proposed reduction is estimated to cost the Treasury between £10.5 billion and £12 billion annually.
However, the proposal faces skepticism from some quarters. The thinktank Tax Policy Associates has warned that a VAT cut might disproportionately benefit larger businesses and that the allocated funds could be better utilized for broader economic growth initiatives. Despite this, Andy Burnham, a potential prime ministerial candidate, has expressed tentative support for a reduction.
Trade bodies representing the hospitality sector have emphasized the "devastating impact" of current taxation levels, stating that the accelerating number of businesses operating at a loss forces difficult decisions about closures. They are calling on the government to act swiftly to reduce the sector's tax burden.