Now is not the time to end the hospitality VAT cut

by Danielle Boxall, media campaign manager


The TaxPayers’ Alliance has written extensively on the plight of struggling sectors, in particular the hospitality industry, as the country has begun to emerge from the pandemic. According to the latest retail stats from Office for National Statistics (ONS), it seems that the tide may finally be turning. 


Here are the key figures:

  • Retail sales volumes fell by 0.9 per cent in August 2021, following a 2.8 per cent fall in July; however, volumes were up by 0.3 per cent in the three months to August compared with the previous three months.

  • Food store sales volumes fell by 1.2 per cent in August 2021, with some evidence to suggest that the further easing of hospitality restrictions had an impact on sales, with increased spending on eating and drinking at restaurants and bars.

  • Across businesses in the retail industry, 6.5 per cent reported they were not able to get the materials, goods or services needed from within the UK in the last two weeks.

  • Another 8.9 per cent of businesses in the retail industry reported they had to change suppliers or find alternative solutions to get the materials, goods or services they needed from within the UK in the last two weeks. Over 22 per cent of food stores reported this, followed by 18.8 per cent of fuel stores and 11.1 per cent of clothing stores.


With last month’s supermarket sales falling, it seems that Brits are heading out to pubs and restaurants. Debit and credit card spending patterns show a fall in staples like food at the same time as an increase in social spending, like eating out and takeaways. This is backed up by data from the online reservations service Open Table, which reveals a steady increase in bookings in August, peaking around the bank holiday. 


So what’s behind this uptick? Jonathan Athow, the ONS’s deputy national statistician for economic statistics puts it down to the lifting of coronavirus restrictions. Undoubtedly the end of restrictions and the success of the vaccine rollout has given Brits more confidence to go out (and enabled venues to trade at full capacity), but there are also other factors at play. 


We have repeatedly seen the huge benefits that tax cuts bring both businesses and their customers. The chancellor’s hospitality VAT cut has meant that firms like Nando’s, Pret and JD Wetherspoon have all cut prices to tempt punters back through their doors - clearly, it’s working. 


With restrictions gone and social spending on the up, the future looks rosy for our favourite pubs, bars, restaurants and cafes. Scratch a little deeper though, and the real challenges lie ahead. The same ONS dataset shows that 22 per cent of food stores faced shortages forcing them to find alternative suppliers, well above the average of 8.9 per cent. While this figure only applies to supermarkets, one can confidently assume that such shortages would apply to hospitality too. Indeed, previous ONS stats revealed that between 26 July and 8 August, the accommodation and food sector had the largest number of businesses with low stock levels at 27 per cent.


It’s not the only shortage pubs and restaurants are facing right now either. According to figures from the ONS, 30 per cent of hospitality businesses found it more difficult to fill vacancies than normal. The staff shortages are particularly acute after lockdown and furlough gave those in the fast-paced and demanding hospitality sector time to reassess their lifestyles. The industry subsequently saw the highest proportion of furloughed workers leaving at 14 per cent, compared to 4 per cent on average. Chefs, waiters, and bar staff are in high demand. 


Shortages have increased operational costs too, with food prices going through the roof. When the reduced VAT rate comes to an end in less than a fortnight’s time, punters are rightly concerned that these pressures will lead to price hikes, making the cost of going out unaffordable. We don’t want to create an economy where drinking and dining out becomes the preserve of the well-off. Extending the VAT cut is one easy way to mitigate against this, allowing wages to rise and supply to stabilise while giving the sector time to adjust. 

After such a chaotic year and a half, hospitality needs more time to get its head above water. Ministers shouldn’t pull the rug from underneath them, just when things look like they’re back to normal. Time is running out - I urge you to sign our Quid’s Inn petition to prolong the VAT cut before it’s too late.

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