UK on-trade slashes prices by 7.5%

Up to 15,000 UK pubs, bars and restaurants will today slash their food and drink prices by 7.5% as part of a campaign to persuade the government to cut VAT.

Tax Equality Day, led by campaigner Jacques Borel, seeks to highlight the benefits of a cut in VAT, and the disparity between tax levied on pubs, bars and restaurants compared to supermarkets.

Currently the former pay 20% on all food and drink sales, while supermarkets remain largely exempt.

Wetherspoon recently used the announcement of their full year results to highlight the discrepancy between pubs and supermarkets.

Big names taking part in the one day event include JD Wetherspoon, Wadworth & Co., Everards, Fullers and Punch Taverns, all of which will be reducing the prices of their food and drink by 7.5% today to demonstrate the effect cutting VAT to could have on the hospitality industry.

Jacques Borel, who is leading the campaign, said: “Lower prices would help to stimulate demand, while greater investment and training would enhance service quality. So, although the Treasury would experience a decline in direct VAT receipts were the rate to be reduced to 5%, it would gain additional revenues from higher sector turnover.

“It would also benefit from higher income tax and National Insurance payments, higher corporation tax receipts, and savings in unemployment benefits. It would gain further amounts because the VAT base would be broadened.”

Last year’s event, then called Tax Parity Day, helped boost sales by up to 20% in some places with Wetherspoon reporting a sales increase of between 10 and 23%.

However Dimitris Hiotis, partner at pricing expert consultants Simon-Kucher & Partners, believes campaigners calls for a VAT cut are not likely to be taken seriously by the government until the UK economy is in need of a “boost”.

He said: “While the campaign aims to increase support for lower VAT from the public, thereby increasing political pressure, the campaign is unlikely to yield results in the short term. This is because at the moment the government is achieving a reduction in unemployment, GDP is growing relatively well and tourism is generally increasing, while at the same time tax revenue is quite important to reduce the government debt.

“However, if and when there is need for a boost in the UK economy, such a measure may be considered, in the same way that the VAT was reduced at the beginning of the financial crisis to boost demand and growth.”

The UK government rejected a drop in VAT in February arguing it would cost too much and create a shortfall in tax revenue.

A Treasury spokesperson said: “We are committed to supporting the leisure and hospitality industry and have cut the tax on a typical pint of beer by one penny at Budget 2013 and by a further one penny at Budget 2014, making a pint of beer 8p cheaper than under inherited duty plans.

“We are also providing additional support to businesses in a number of ways.

“For example, from April 2014 businesses and charities have been able to benefit from up to £2,000 off their employer national insurance contributions bill and over £1bn of business rates support has been provided.”