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Crisis hit hospitality sector calls for VAT reduction to be extended

By Calum MacLeod

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Chancellor Rishi Sunak is being called on to extend the reduced VAT rate for the Covid-hit hospitality sector after a study found many firms viewed it as vital to their continued survival.

The study of more than 1000 hospitality and tourism businesses by the Cut Tourism VAT (CTV) Campaign, UKHospitality, the Tourism Alliance and the Association of Leading Visitor Attractions found that the reduced rate of VAT at five per cent was vital in protecting employment and the survival of those businesses with the vast majority of savings used to retain staff, pay suppliers or passed on to customers.

The Chancellor has previously extended the end date of the reduced rate from December 2020 to the end of March 2021 and without this cut in VAT, the CTV Campaign estimates a third of hospitality businesses could have closed.

The survey shows that if the VAT rate reverts back to 20 per cent in April 2021, there will be further cut-backs and job losses and the CTV Campaign estimates that this could mean the loss of 310,000 jobs in hospitality and tourism.

Also, if the Chancellor does not extend the VAT cut in his March Budget it would likely lead to an increase in prices to consumers just before Easter.If the VAT cut were to continue beyond March 2021 most operators would use it to rebuild through investment and price reductions for consumers as well as continue to meet the costs of Covid compliance.

The survey results suggest that turnover in the tourism and hospitality sector would be £9 billion greater with VAT at five per cent compared to 20 per cent.

Graham Wason, chairman of the CTV Campaign, said: “The results of this survey show not only that reduced VAT has been crucial to the survival of hundreds of tourism and hospitality businesses, but also that what is vitally needed now is the announcement of a continued reduction to boost investment, jobs and the wider UK economy.”

Kate Nicholls, chief executive of UKHospitality, said: “Hospitality has been devastated by the Covid crisis that has impacted so many of our lives and livelihoods. The decision of the Chancellor to cut VAT to five per cent last July was one of the few bright spots of the year and stimulated economic growth before the second wave began to hit. If the Government wants to see a turbo-charged recovery in communities right across the UK then an extension of the VAT cut is the surest way to do it – creating jobs, investment in our high streets and helping customers get a cheaper hospitality experience.”

Kurt Janson, director of the Tourism Alliance, added: “The temporary reduction in VAT for the tourism and hospitality industry has been vital in protecting businesses, suppliers and employment so returning to a 20 per cent rate would undo all that good work and result in 310,000 job losses. We believe that there is also a huge benefit in combining a reduction in VAT for the tourism and hospitality industry with a reduction in the VAT threshold for businesses.”

A total of 1144 businesses in tourism and hospitality responded to the survey and 90 per cent said that the VAT cut in July 2020 was important, very important or crucial to their businesses with over 75 per cent saying that they might not have been able to continue trading without it.

Most businesses used some of the VAT reduction to meet the additional costs of covid compliance and the next most important use was to pay wages and suppliers. The reduction in the VAT rate not only helps the hospitality and tourism sector but also has flowed through to the supply chain.

Respondents were asked to comment on how their attitude to investment might change if VAT were to be five per cent indefinitely and over 80 per cent did so, with nearly all comments indicating a very strong positive impact on confidence and investment and 72 per cent of businesses said that they would use some of the reduction to fund investment.

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