Industry disappointed by Sunak’s spring statement

The hospitality industry has been left deflated following the chancellor's spring statement, which was delivered to parliament on 23rd March.

While Rishi Sunak unveiled the government's new tax plan in a bid to ease the UK's growing cost of living crisis, industry leaders were left frustrated by the silence on VAT. Much of the industry had been hoping for the government to maintain the reduced rate of 12.5% on food and soft drinks, particularly because of the growing momentum of the sector's #VATsEnough campaign.

"This is a real setback for thousands of UK hospitality businesses still suffering the devastating effects of Covid, and facing a tidal wave of rising costs," said Kate Nicholls, CEO of UKHospitality. "For many businesses, the removal of the lifeline of a lower rate of VAT might prove fatal. For a heavily, disproportionately taxed sector a return to 20% dashes the hopes that many businesses could begin to recoup some of the losses of the last two years."

What Sunak did announce was plans to boost business investment, innovation and growth across the UK. He has increased the government's employment allowance – a relief that allows smaller businesses to reduce their national insurance contributions (NICs) bills each year – from £4,000 to £5,000 as part of the strategy. He says the cut is worth up to £1,000 for half a million smaller businesses, starting on 6th April. 

The chancellor said he will examine how the tax system, including the Apprenticeship Levy, can be used to encourage employers to invest in adult training, with the UK currently spending half the European average on employee training. 

"The increase in the NIC threshold for employees is a very positive move and will boost disposable income, although extending that measure to employers would help hospitality businesses to recruit and retain talent," said Nicholls.

Sunak confirmed a 50% business rates relief for eligible hospitality, leisure and retail properties with a cap of £110,000 per company, which will also come in in April. 

Ronan Harte, chief executive of BaxterStorey, commented: “Although today’s statement shows some promising signs for the hospitality sector with business rates discounts coming into effect next month, it falls short for those operating within the sector in many ways. Most significantly, failure to extend the current 12.5% rate of hospitality VAT will be hugely damaging to businesses already struggling with debt post-Covid, and at a time when many hospitality venues are having to cut trading hours and raise prices to combat spiralling costs.

"What is needed is to receive better support from the government to mitigate the challenges of rising costs, labour shortages, and global supply chain issues – all of which are impacting at a time when the industry is still attempting to recover from the pandemic. Failure to do more to support hospitality bosses may impact any upwards trajectory and leave the industry struggling to invest and forward plan.”

Ian Thomas, CEO of BM Catering, added: "The 5p fuel duty reduction is very much welcomed as it will have an immediate impact on our supply chain. However we, like the rest of the industry, are disappointed that there was no mention of keeping VAT rates to 12.5%. The rise in April will add significant pressure on the whole supply chain, at a time when the industry is still reeling off the back of Covid- and Brexit-based issues.

“The reduction in personal NI is positive for those on lower incomes across the sector and the reduction in income tax shows intent on the part of the government who are clearly trying to demonstrate a longer-term low tax approach. This could ultimately help to mitigate inflationary impact on both our suppliers and our teams - though a date for when this commences would be useful to know to help with planning.”

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