Give me some relief

Several industry bodies have joined together to campaign for a reduction of VAT applying to hospitality and tourism from 20% to 10% in the forthcoming budget on Wednesday 6 March. This is something that would give a significant boost to a hard-pressed sector. Several other countries have a similar differential, and there is a precedent for it in this country on a temporary basis during the Covid crisis. There is a petition to support it here, which also gives more detail on the rationale behind the proposal. A petition has also recently been added to the government website here.

However, a note of caution is needed. It would lead to a large hole in Treasury receipts and, while it has been widely reported that there is some scope for tax cuts, this may not be seen as the highest priority. While hospitality is a major industry and a large employer, most hospitality spending is to some extent a luxury, and prioritising daily necessities may be seen as more important. So, realistically, the chances of it actually happening must be below 50-50.

A further issue is that it would apply to hot takeaway food as well as on-premises consumption. This was the case with the VAT relief during Covid, and in practical terms it would be impossible to disentangle the two. So it might be portrayed as a tax bonus for McDonald’s and kebab shops.

On the other hand, it would not apply to alcoholic drinks, so there would be little or no benefit to wet-led pubs. Again, this was the case during Covid, and it would be very difficult to rigidly segregate on- and off-sales. In any case, the proponents of the reduction aren’t calling for it to apply to alcohol. And the public health lobby would be up in arms if there was any tax reduction on drink.

The effect of a reduction in VAT from 20% to 10% would be to reduce sale prices by 8.33%, although it is probable that much of it would be used to strengthen margins rather than being given directly to customers. Of course this would provide a boost, but it isn’t really a game-changer either way. So, while a VAT reduction would be welcome, it’s probably wise not to bet the farm on it happening.

In contrast, some of the advocates of a VAT reduction have been pooh-poohing the idea of freezes or reductions in beer duty. “We never see any of it”, they complain. Well, there hasn’t been any reduction in the general rate of beer duty for several years. The differential between draught and packaged rates was achieved by freezing the draught duty while increasing that on packaged beers. So there hasn’t been anything for brewers to give to pubs. (It is true that the lower sub-3.4% duty rate doesn’t seem to have resulted in much reduction of wholesale prices for the products it applies to).

But the UK has one of the highest rates of beer duty in Europe, if not the world, so any freeze or reduction would be welcome, and would benefit all beer drinkers. It’s a lot better than the alternative - if there was to be a substantial increase, then no doubt the same people would be loudly decrying it. And to dismiss the impact of beer duty changes rather undermines CAMRA’s campaign to widen the draught discount from 10% to 20%.

There are other forms of tax relief that might benefit the licensed trade, in particular reducing the rate of employer’s National Insurance contributions, which has been widely touted as a possibility in the budget, and is probably more likely than a VAT cut.