The Labour government has responded to growing calls for a reduced VAT rate for hospitality venues, rejecting a petition that garnered over 15,000 signatures. The petition urged the government to cut VAT on hospitality from 20% to 10% to prevent closures and protect tax revenue.
Petition's Demands
The petition, backed by thousands, argued that a lower VAT rate would keep viable businesses trading, securing jobs and ongoing revenue. It stated: "Hospitality businesses operate on very tight margins and struggle to absorb 20% VAT alongside rising food, energy, wage and rent costs." The petition called for a permanent reduction to 10% VAT to save jobs, keep venues open, support apprenticeships and skills, and strengthen high streets.
Government's Response
HM Treasury issued a formal response, acknowledging the contribution of hospitality businesses to economic growth and social life. It highlighted the introduction of Great British Summer Savings, a temporary reduced VAT rate on children's menu meals and eligible family attractions from 25 June to 1 September, cutting VAT from 20% to 5%.
The Treasury stated: "VAT is a broad-based tax on consumption, and the 20 per cent standard rate applies to most goods and services. Reducing VAT for hospitality to 10 per cent would come at a significant fiscal cost."
Cost Implications
HMRC estimates that reducing the standard rate of VAT to 10% on accommodation and food and beverage services would cost approximately £11 billion a year. This would necessitate tax rises or spending cuts elsewhere, or increased borrowing. For context, £11 billion is roughly equivalent to the annual Child Benefit bill, the total expenditure on the Royal Navy, or a 1 percentage point rise in the Standard Rate of VAT.
The government concluded: "We keep all taxes under review and make decisions on changes at Budgets, where they can be considered in the context of the overall public finances."
