Trade associations representing the UK’s hospitality and tourism sectors have united to call on the chancellor Rishi Sunak to introduce a permanent lower rate of VAT for their “fragile” sectors.
Under Treasury plans, hospitality and tourism VAT rises to 12.5% from Friday (October 1) and will return to its pre-pandemic level of 20% come April 2022.
UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping, Tourism Alliance and the Association of Leading Visitor Attractions warn that unless VAT remains permanently low at 12.5%, the government risks “derailing the recovery at a time when businesses are still in survival mode”.
Hospitality and tourism were the hardest hit sectors during the pandemic, with spend down £100 billion, 12,000 businesses permanently closed and 660,000 jobs lost.
However, the reduction in VAT helped protect hundreds of thousands of jobs and allowed many businesses to stay open and serving customers when permitted to trade, they say.
A survey of the trade associations’ members covering 815 businesses found that 77% said the reduced rate it is important or crucial to their viability.
Businesses said they will use the current reduced VAT rate to invest in their businesses and keep prices more affordable for customers.
If the reduced rate were to continue to apply beyond April 2022, 70% would use the saved costs to maintain business investment.
Returning VAT back to 20% in April 2022 would have serious consequences – six in 10 businesses said it would likely lead to cutbacks and job losses; with one in 10 saying it could cause their business to close.
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In a joint statement, the trade bodies said: “Businesses are at a perilous stage of their recovery after what’s been a devastating 18 months.
“Costs are increasing and there are numerous operational challenges for them to deal with, specifically around labour and product supply.
“A reduction in VAT has helped many of our businesses survive to this point and was most welcome.
“However, the return of VAT to its pre-pandemic level next year would curtail investment, restrict growth, set back our tourism recovery and risk yet more painful job losses.
“We’re now calling on the chancellor to commit to introducing a permanent 12.5% rate of VAT in his upcoming Budget, later this month.
“This will help protect jobs and continue the support for our hospitality and tourism businesses which contribute hugely to the nation’s economic and social wellbeing.”
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