Calls issued for hospitality sector VAT cut after ‘four years of enormous disruption’

Because of this, the chamber’s Hospitality Forum is calling on Chancellor Jeremy Hunt to cut the rate of VAT paid by firms in the sector to five per cent, as was done during the aftermath of the pandemic.

VAT had been temporarily reduced from 20 per cent to five per cent for enterprises in the hospitality, hotel and leisure industries but was restored to its current rate of 20 per cent in March of last year.

Andrew Pericleous, chair of the Hospitality Forum, said: “The Forum believes that conditions are sufficiently serious to warrant a reintroduction of the reduced rate.

“Data in the British Chamber of Commerce’s most recent Quarterly Economic Survey showed the hospitality sector to be effectively in recession. The vast majority of firms in our sector are struggling with labour shortages and the twin pressures of inflation and interest rates continue to make life incredibly challenging.

“Reducing the rate of VAT that firms in the sector pay would help provide some much-needed breathing room as we enter our quietest period of the year.”

The Chamber’s latest Quarterly Economic Survey showed that more than four in five hospitality firms were struggling to recruit staff while three quarters of businesses in the sectors were struggling with the cost of wages and utilities.

Last week, hospitality trade body UKHospitality unveiled its three point plan for the coming year. The body also called for a lower rate of VAT for the sector, which it said would “boost demand, help businesses overcome rising costs and prevent further price rises for consumers.”

In addition, the group called for greater incentives and rewards for businesses investing in their people. It said this should start with Apprenticeship Levy reform in order to give businesses “more control and flexibility” over how funds are spent, as well as supporting recruitment and development.

The Chamber’s recent Quarterly Economic Survey also found that activity among the region’s businesses declined at the end of 2023, with employment, sales and investment among the region’s firms all having fallen.

Sales, both domestically and internationally, declined – in some sectors by a dramatic margin. 38 per cent of firms in the manufacturing sector reporting decreasing activity.

Similarly overseas sales for service sector firms declined at their sharpest rate since the the pandemic.

Hiring intent also declined but few firms expect to cut staff, with most businesses expecting to keep staff levels static, with 78 per cent of service sector firms and 67 per cent of manufacturers anticipating no change to their headcount in the coming months.

Investment in staff and training in service sector firms, however, grew by 32 per cent. Martin Hathaway, managing director of the Mid Yorkshire Chamber of Commerce, described this figure as “extremely encouraging”.

Despite the bleak picture reported during the fieldwork during the survey, Yorkshire business remains optimistic on profits with neither sector anticipating a loss during the start of 2024.

Service sector firms also said they were confident on delivering profits in the short-term.