Double-digit price hike for hospitality customers

Today (1 April) has seen VAT rise from the reduced rate of 12.5% to 20%, at the same time as the sector is forecasting cost inflation running at 18%. The current landscape will result in a double-digit price increase for consumers as operators struggle to survive, says the industry body UKHospitality (UKH). 

Recent business surveys show the industry is facing a 95% surge in energy bills, 19% in labour costs, and a 17% and 14% rise in food and drink prices, respectively. It is thought that these pressures have significantly worsened in the last two weeks. Retaining the reduced VAT rate would have helped operators absorb the cost increases, which come as consumers face their own cost of living crisis. 

Price hikes at this time will wreak havoc on consumer demand, damaging an already fragile sector and hindering the UK's economic recovery, leaving the hospitality industry unable to play its role in generating jobs, investment and tourism. Prior to the pandemic, the sector created £130bn in economic activity, generated £39bn of tax for the exchequer and represented 10% of UK employment. 

The UK already has one of the highest rates of tax for food and accommodation in Europe – in France and Spain, the VAT rate is set at just 10%, for example. In the UK, there is consumer support for the lower rate of VAT, with just one in five thinking it should have returned to 20%, according to a YouGov poll.

UKH CEO Kate Nicholls comments: "Given the unfolding cost-of-living crisis for consumers and soaring operating costs for businesses, the return to 20% VAT for the sector will prove nothing less than catastrophic.

"The now inevitable price rises for consumers will dampen demand and many hospitality businesses – one in three having less than a month of cash reserves and most are carrying heavy debt burdens – will fail as a result. This can only cause the UK’s wider economic recovery to falter. If the sector is to have any hope of playing its full role in fuelling the UK’s recovery then we need support."

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