UK hospitality seeks 10% VAT to match Europe
British pubs and restaurants are lobbying for a VAT cut to align with lower European rates, but a £12bn price tag and windfalls for multinational chains threaten to derail the campaign.
A coalition of British pubs, restaurants and celebrity chefs is pushing for a cut to hospitality VAT from 20% to 10%. A reduction would align the UK with lower rates across Europe but spark a major fiscal debate.
The UK currently levies a standard rate on hospitality that starkly contrasts with neighbours like Germany at 7%, and France, Italy and Spain at 10%. The Republic of Ireland will lower its rate for food-led businesses to 9% this Wednesday, underscoring the UK's position as an outlier.
Aligning with the continent would ease a deepening crisis for British venues. Since Labour took office, increases to employers' national insurance contributions and the minimum wage have added £5bn a year in costs to the sector. Combined with prolonged energy price shocks, the financial damage is severe.
Fresh data commissioned by industry trade bodies shows nearly a quarter of hospitality businesses are losing money. One in six operators fear they will not survive the year, while 5% say they are already no longer financially viable.
The "VAT's the problem" campaign, spearheaded by chef Tom Kerridge, has gathered more than 240,000 signatures. Venues hope to amass 1 million signatures as they roll out the petition to customers this week.
Ravneet Gill, a chef and restaurant owner, said the 20% rate leaves her with “tiny” profit margins. “If we just had that little bit of a load lightened, we could increase the workforce, we could train new people up, but at the moment, everyone is so conservative about hiring anybody, which is very worrying,” she said.
Political momentum for the measure, however, appears to be stalling. Andy Burnham, widely expected to become the next prime minister, previously backed a 10% rate but omitted it from a major economic speech on Monday. He instead promised to reform business rates to support high street businesses.
Critics argue that abandoning the VAT proposal is the correct fiscal choice. The Tax Policy Associates estimates a halving of the rate would cost the government £12bn, with multinational chains capturing the lion's share.
McDonald’s, for example, would retain an extra £432m under the proposed cut. “It’s a hugely expensive and inefficient tax cut, and the evidence shows that most of the benefit will be retained by large businesses to boost their profits,” said Dan Neidle, the thinktank's founder.
Industry leaders counter that the economic ripple effects justify the cost. Nick Mackenzie, chief executive of the 2,700-venue operator Greene King, argued the sector drives rapid job creation for young people. If VAT remains off the table, broader business rates reform or a reversal of the national insurance hike may become the primary focus for sector relief.
