Pleas for low VAT ignored in Spring Statement

Pleas for VAT cut ignored in Spring Statement

Rishi Sunak [Credit: Number 10 Flickr]

UK: Chancellor of the Exchequer Rishi Sunak has raised the national insurance threshold by £3,000 but ignored pleas to keep VAT at 12.5 per cent for the hospitality industry.

According to UKHospitality, more than 250 hospitality and leisure business leaders wrote to the chancellor to maintain the current VAT rate at 12.5 per cent beyond March 2022. 

Signatories included Apex Hotels, Hilton, IHG Hotels & Resorts, Nobu, Bourne Leisure, Mitchell & Butlers, and many more.

Judging by the lack of mention of VAT in the chancellor’s Spring Statement, it seems the rate will return to 20 per cent in April this year.

Sunak has however confirmed an increase of the national insurance threshold to £12,570, up from £9,600. This will benefit around 70 per cent of workers, amounting to a total £6 billion personal tax cut for 30 million people in the UK, according to the chancellor.

By the end of 2024, Sunak also revealed his ambition to cut the basic rate of income tax from 20p to 19p in the pound. 

Other measures announced included a fuel duty cut of 5p per litre; increasing the employment allowance for small businesses to £5,000; and a temporary business rates relief of 50 per cent (up to £110k) for retail, hospitality and leisure businesses.

Lionel Benjamin, co-founder of AGO Hotels, said: “We are pleased to hear about the business rates discount that will take effect in April for retail, hospitality and leisure businesses, but are disappointed that nothing on the hospitality VAT has been announced, indicating that the April rise back to 20 per cent will go ahead. 

“Combined with a rise in national insurance tax, surging inflation and rising energy bills, all of which will no doubt have a drastic impact on businesses across all sectors, AGO was hoping for further support from the government today as the hospitality industry continues to feel the effects of the pandemic.”

UKHospitality chief executive Kate Nicholls said: “This is a real setback for thousands of UK hospitality businesses still suffering the devastating effects of Covid, and facing a tidal wave of rising costs. For many businesses, the removal of the lifeline of a lower rate of VAT might prove fatal. For a heavily, disproportionately taxed sector a return to 20 per cent dashes the hopes that many businesses could begin to recoup some of the losses of the last two years.

“Operators in the secstor – large and small – have several hurdles to clear on the road to recovery: huge accumulated debts; unprecedented rising costs for energy and raw goods; a chronic shortage of staff; and a fundamentally unfair and crippling business rates regime we’re desperate to see reformed.

“Locking in VAT at 12.5 per cent would have given hospitality businesses a major boost, and helped the sector in its ambition to lead the UK back to post-Covid prosperity. As it is, thousands of jobs could be lost, the UK will remain uncompetitive versus international rivals, and already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation.

“Despite today’s disappointment, UKHospitality will continue to work closely with government to achieve the best possible trading conditions for the hospitality industry – which remains the sector best placed to turnaround the economy – and is buoyed by recent support for our 12.5 per cent VAT call from a significant number of MPs.”

Nicholls added: “The reform of the apprenticeship levy, to focus on improving productivity, is something on which we have lobbied government for five years or more and will be widely welcomed by our sector. Additionally, the generous increase in the NIC threshold for employees is a very positive move and will boost disposable income, although extending that measure to employers would help hospitality businesses to recruit and retain talent.”

“In short, the longer-term measures in the chancellor’s statement will be positive for those businesses equipped to survive the coming months. However, the opportunity – primarily through retaining VAT at 12.5 per cent – to help more vulnerable hospitality businesses navigate their way through to the autumn has sadly been missed.”

Sarah Travell, founder and CEO of Virgate, the tech-led accountancy and advisory firm, said: “The lack of support for hospitality and leisure businesses in today’s Spring Statement perhaps speaks directly to a xhancellor under pressure to balance the books amid a somewhat downbeat outlook for the public finances over the next 12 months.

“It does nothing however to remove or alleviate the pressure that many businesses are feeling amid an extraordinary period of cost inflation and as many emerge from the pandemic.

“The government, with the removal of nearly all Covid-related support and VAT returning to 20 per cent for hospitality, appears to be signalling the end of the crisis and a return to business-as-usual. Yet it feels anything but; companies continue to work to repay accrued debt and repair balance sheets, and at the same time are dealing with genuinely unprecedented cost inflation across every line of the P&L, from energy, fuel, the cost of food and drink, and employment.

“The business rates discount of 50 per cent is welcome but in reality will help only the smallest businesses in the sector. Clearly it is going to be a challenging six to 12 months and the businesses that will emerge in the best shape are those with the ability to understand every facet of their business and their finances in real time – particularly their trading position, cash position and their real-time margins across the breadth of their operations.”

Lorna Davidson, CEO at Redwigwam, an online platform for flexible workers, said: “Several of the measures announced demonstrate that Sunak has listened to the concerns of businesses and workers and recognises the additional pressures caused by the Ukraine situation. I welcome the announcements regarding the cut in the basic rate of income tax to 19p in the pound and the equalising of the thresholds for National Insurance and income tax. I was also pleased to hear about the cut in fuel duty by 5p a litre until March next year, although I’m worried this doesn’t go far enough.

“The vast majority of my staff and Rediwigwam’s workers are driving to work and around the country, so the current high costs of fuel are a big concern for them. Workers are really feeling it where it hurts most and that’s in their pockets. Given the tough times that lay ahead, ensuring that workers are paid properly, quickly and efficiently is key in the current climate.”

The chancellor’s Spring Statement comes as research from RSM Hotels Tracker reveals an 18 per cent increase in occupancy levels in February, up from 47 per cent the month before. Wales saw the largest month-over-month increase of 21 per cent, closely followed by Scotland at 20 per cent. London’s occupancy also increased 20 per cent over January.

ADR in UK hotels jumped £14 month on month and surpassed pre-pandemic prices at £86, whilst RevPAR increased from £34 to £55 – but still sits £4 behind February 2020 rates.

Chris Tate, head of hotels and accommodation at RSM, said: “Increases in average daily rates and revenues per available room are good to see, but due to the inflationary impact over the last two years, reaching pre-Covid levels will still feel like a shortfall for hoteliers. However, nearly a quarter of pre-bookings for March will be a welcome boost for the sector, as the upward trajectory for occupancy looks set to continue.

“Despite positivity, economic headwinds are ahead. Soaring energy and supply chain costs, which could worsen due to the Russia/Ukraine conflict; rates and VAT reliefs coming to an end; rising inflation and increasing labour costs all present the perfect economic storm for hoteliers. The Chancellor needs to step up and respond to calls to extend VAT support, whilst offering further support to mitigate the energy burden on hotel businesses.”

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