'Hospitality on cliff edge': Higher prices 'inevitable' at pubs and restaurants as VAT rises

Price rises are "inevitable" at pubs, restaurants and cafes when VAT on hospitality increases tomorrow, an industry body representing 10,000 UK venues has warned.

The government has resisted pressure to keep VAT on hospitality firms at 12.5% - a rate introduced to help venues deal with the impacts of the pandemic - meaning it will return to 20% on Friday.

UK Hospitality CEO Kate Nicholls said allowing VAT to rise by 7.5% will "prove nothing less than catastrophic" as businesses also deal with the rocketing cost of energy.

“The now inevitable price rises for consumers will dampen demand and many hospitality businesses...will fail as a result."

The industry body said firms will be left with "no choice but to pass on price rises" to customers, especially given the sector is forecasting inflation to soon hit 18%.

On top of that, according to UK Hospitality, firms in that sector are facing a year-on-year hikes of 95% to energy bills, 19% in labour costs, and a 17% rise on food and 14% on drink prices.

"Keeping VAT at 12.5% would have supported operators trying to absorb this tidal wave of cost increases, which come as consumers face their own cost-of-living crisis," UK Hospitality said.

VAT was initially slashed to 5% at the start of the pandemic before rising to 12.5% in September last year - and just one in five people think it should return to 20% now, according to a YouGov poll.

Number 10 accepted the pandemic had been "very challenging" for the industry, with Boris Johnson's spokesman saying the government is "doing what we can to support the hospitality sector".

He said the UK is emerging faster from the pandemic than any other comparable country, providing a boost for the hospitality sector.

The spokesman also said there is still support available to firms, including the Time to Pay arrangement, which gives additional time and space for them to bring their tax arrears up to date.

But the industry is desperate for VAT to stay at the reduced rate, with the UK having "one of the highest rates of tax for food and accommodation Europe," according to UK Hospitality.

In France and Spain the VAT rate is set at just 10%, the body said.

The Inception Group, which owns 12 hospitality venues in London, said the VAT increase "will massively exacerbate inflation", meaning prices will inevitably increase.

Group founder Charlie Gilkes said: “In April hospitality is faced with a cliff edge, with an increase in national insurance, an increase in the national minimum wage and a substantial increase in business rates.

"This is on top of soaring energy and food costs. The government could have helped ease the pain and aided the recovery by keeping VAT at 12.5% for longer but now the sector is also faced with this returning to 20%.

"Inevitably this going to be incredibly tough to bear and will massively exacerbate inflation.”

Pub-goers will remember Chancellor Rishi Sunak announced changes to alcohol duty in his Budget last October, which he said would allow pubs to cut the price of a pint by 5%, however that tax adjustment will not come until February 2023.

Paul Campbell, owner of investment firm Hill Capital Partners LLP, which has stakes in the hospitality sector, said: "It’s disappointing that the government has withdrawn virtually all support from a sector that can demonstrably help drive the recovery, growth and create jobs - it had the opportunity to be far more progressive.

"Hospitality businesses are fighting an unprecedented wave of cost increases and doing all they can to keep prices down for their customers. But the removal of VAT relief makes this impossible and will lead to more inflation and menu pricing will inevitably rise."

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