UK drinks industry urges government to cut VAT, claiming it could save £4.6 billion

Hospitality and tourism bodies have banded together, publishing a study which claims a VAT cut could save the government £4.6 billion and create a quarter of a million jobs in the next decade.

In response to the crisis to UK hospitality and tourism caused by Covid-19, the UK Government made an announcement on 8 July 2020 allowing VAT registered businesses to apply a temporary 5% reduced rate of VAT from 15 July 2020 to certain supplies relating to hospitality, hotel and holiday accommodation, and admissions to certain attractions.

The temporary reduced rate was originally to be withdrawn at the beginning of January 2021 but was later extended to the end of March 2021. As announced at Budget 2021, the Government further extended the temporary reduced rate of VAT of 5% until 30 September 2021 and prepared for a new rate of 12.5% from 1 October 2021 to 31 March 2022.

The British Beer and Pub Association, UKHospitality, the Tourism Alliance and the Association of Leading Visitor Attractions have today published a study claiming that the retention of the current reduced level of VAT could accrue massive benefits for the sector.

The report, commissioned jointly by the four bodies, found that a permanent rate of 12.5% VAT will bring VAT on hospitality and attractions in line with the European average. The increase in the UK rate from 5% to 12.5% in October 2021 means that the UK is now close to the European Union (EU) average: 3 percentage points above the EU average for visitor accommodation (9.4%) and out-of-home meals (11.6%); below the EU average in the case of admissions to amusement parks, cultural services and sporting events.

According to its commissioners, the report suggests the following will result from the VAT rate being permanently lowered to 12.5%:

• 286,850 jobs will be created over 10 years
• £7.7bn of additional turnover will be generated over 10 years
• £4.6 billion in net present value of fiscal gains will be delivered to the HM Treasury over 10 years
• a positive gain on the government’s investment will be returned in less than 5 years

A spokesperson for the coalition of industry bodies said: “We must now reignite our industry with a long-term approach and vision to our sector recovery.

“The report we publish today sets out the undeniable case for making permanent the 12.5% rate of VAT. The tourism and hospitality sectors can truly act as an engine for the UK’s recovery as we look beyond the pandemic.

“As we approach the point in April where the reduced rate comes to an end, we are united in calling on the Government to change course and cancel the planned increase. The economic and societal benefits of making this change would be enormous.”