Rishi Sunak Has Screwed Up by Raising VAT, Restaurant Leaders Say

Chancellor Rishi Sunak has announced a return to the pre-pandemic 20 percent rate of value added tax (VAT) for the hospitality industry in his spring statement today, 23 March. Restaurants in London had been hoping the government would prolong the lower rate of VAT, fixed at 12.5 percent since the autumn of 2021 to aid business’s recovery from COVID-19 and business closures throughout 2020. Sunak had originally lowered the rate to 5 percent in July 2020 when restaurants reopened their dining rooms following the first national lockdown.

While there were “positives” in the chancellor’s announcement, trade body U.K. Hospitality said the VAT change it would be met with “disappointment by thousands of hospitality businesses,” and that it was a “a massive missed opportunity.”

“Locking in VAT at 12.5 percent would have given hospitality businesses a major boost, and helped the sector in its ambition to lead the UK back to post-Covid prosperity,” U.K. Hospitality’s 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” and that the removal of the “lifeline of a lower rate of VAT might prove fatal,” Nicholls added. “For a heavily, disproportionately taxed sector a return to 20% dashes the hopes that many businesses could begin to recoup some of the losses of the last two years.”

In what is likely a welcome measure for hospitality workers, the chancellor also announced an increase to the National Insurance threshold, which means employees are able to now earn more before they are obliged to contribute to the national purse: In theory, a little extra money in their pockets. Nicholls said the measure “will boost disposable income, although extending that measure to employers would help hospitality businesses to recruit and retain talent.”

Hussein Ahmad of Viewpoint, account to some of London’s most popular restaurants, including the likes of Mangal 2, Bright, and Ombra, welcomed the increase in the National Insurance threshold, bur told Eater that no VAT change was “a huge blow but not surprising.” There was “very little indication Sunak was going to change tack,” he said.

The Chancellor offering “nothing on the soaring energy costs which are going to have a huge effect on the bottom line for restaurants,” Ahmad added. “All in all, not helpful.”

Ahmad also pointed to the temporary 50 percent business rates relief up to £110,000 per business. He said this was good news for single sites, “But as the cap is per business (rather than per site), those with multi sites will not receive much relief as a percentage of overall rates paid.”

Elsewhere, Steve Alton, chief executive of the British Institute of Inn Keeping said pubs in the U.K. would now “have to significantly grow revenues against pre-pandemic figures to even stand still.”

Alton said, “With devastated profitability, ongoing repayments of pandemic specific debts and rising staff and energy costs, these small businesses needed much more support to enable them to trade out of their fragile positions.”

More soon from London’s restaurants on what comes next.