News from the hospitality industry

Hospitality industry ups VAT campaign

It is undeniable that the hospitality industry has suffered in the past few years. The recession and its aftermath meant that people became a bit more watchful of their pennies and ultimately cut back on treats such as dining out and going for weekend breaks, which had a knock-on effect on the hospitality trade.

In response to this, workers within the industry have been calling on the government to take steps to help them out and make life easier for those struggling to keep their businesses afloat.

Far and away the most popular suggestion appears to be a cut to VAT from the current level of 20 per cent to just five per cent and a number of hospitality associations and businesses have been lobbying for the change for some time now.

Who wants it and why?

According to a survey from the British Hospitality Association, the vast majority of its members are in favour of the cut with a massive 98 per cent claiming that it would help stimulate competition within the industry.

In addition, 85 per cent said that they thought a reduction to five per cent would help stimulate job creation while 90 per cent thought it would help with developing business opportunities.

When questioned about what they would do with the savings a VAT cut would bring them, over 95 per cent said they would pass it on to their customers while others would invest in their products, facilities or staff in order to make them a more attractive option for customers.

In terms of attracting custom, three-quarters of those questioned said they thought that a reduction in VAT would boost their turnover and a similar number thought it would boost the number of domestic visitors while over half thought it would help attract people from overseas.

Some of these benefits have already been seen in nations such as Ireland and France where the cuts have already been implemented. For example in France where VAT was reduced from 19.65 per cent to five per cent over 21,000 jobs were created in one year alone.

Ufi Ibrahim, BHA's chief executive, commented: "Experience in other countries shows that major changes in VAT rates are passed through to customers in their entirety.

"It's clear that our members plan to plough the saving achieved back into their business through lower prices, greater investment, more training and higher wages."

Why has it not been cut so far?

Despite the obvious benefits to the VAT cut, the government has so far stood firm on not implementing one, making the UK only one of four of the 27 European Union member states not to have had a lower rate placed on hospitality services. In effect this makes the nation less competitive than its European counterparts.

Speaking earlier this year at an event in Scarborough, business secretary Vince Cable said that the government is not ignoring calls for a VAT cut, but there simply was not room in the Budget.

"Part of the problem is there is a lot of pressure to cut VAT for particular sectors. Given the state of the problems financially the government is not in a position to make massive, very expensive tax cuts. I'm not saying it will never happen but the chancellor didn't mention it in his Budget, it's not something coming in immediately," he was quoted as saying by the Scarborough Evening News.

What is being done moving forward?

While the government may be reluctant to lower the VAT rate this does not mean that businesses are not going to continue their campaign.

The BHA has linked with Bourne Leisure Group and Merlin Entertainments Group to campaign for a reduced rate of VAT.

The plan involves two stages, firstly obtaining a reduced rate for visitor accommodation and attractions and secondly obtaining a reduced rate for out-of-home meals.


"The BHA is committed to achieving a reduced rate of VAT on all sectors of UK tourism and hospitality. However, this staged approach recognises the fact that in the present economic climate the cost to the Treasury of applying a reduced VAT on out-of-home meals is likely to be politically unacceptable, notwithstanding the greater potential for the creation of jobs," the organisation stated.

The organisations have written an open letter to the chancellor explaining to him why the VAT cut is so badly needed and are also trying to drum up support from the wider public via the social networking site Facebook.

There is also an e-petition which has been spearheaded by industry publication Morning Advertiser. So far it has attracted over 5,000 signatures and people have until August to register their support for the cause.

What do you think about the VAT rate? Should it be cut? And is there more the hospitality industry can do to support its campaign?

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