Prime Minister Rishi Sunak should stop contemplating cuts to inheritance tax and cut VAT for hospitality businesses instead.
This is the argument made in a letter sent to the PM this week by Stirling MP Alyn Smith – an argument which is strongly supported by a host of hospitality trade organisations.
Mr Smith, SNP Member for the rural constituency at the Westminster Parliament, suggested that cutting VAT to 5% for hospitality would be ‘a far more economically and socially productive measure’ than cutting taxes for wealthy individuals.
Smith said: “The hospitality sector is vital social and economic infrastructure, especially in rural areas like mine. Hospitality businesses give a sense of place, provide important local social facilities, attract visitors, deliver employment and have a real impact on the identity and vibrancy of our communities, rural and urban.
“I do not need to tell you, though I do write to emphasise our experience locally in Stirling, that the hospitality trade is in big trouble,” wrote Smith. “Inflation, scarcity and cost of labour, skills shortages, energy and other input costs are all creating a uniquely challenging trading environment for the hospitality trade. They need help now and a cut in their VAT rate would work wonders.
“A VAT cut would be proportionate, clean, easy to administer and an effective way to directly boost the bottom line of these crucial businesses. It would not require any complex bureaucracy and administration as a new grant scheme would, it would simply tax less, relative to the turnover of the business.”
The Stirling MP expressed ‘horror’ that the Conservative government was contemplating cuts in inheritance tax as ‘a sop to already considerably wealthy individuals’, when a simpler fiscal change like a cut to hospitality VAT could deliver benefits to a much broader spectrum of the UK population.
Speaking from the Scottish Beer & Pub Association, Paul Togneri agreed: “A VAT cut for hospitality is something we have been championing for a long time to relieve the immense pressures our industry is facing on rising costs. As one of the most highly taxed and regulated sectors in the UK, more needs to be done to create a fair and sustainable tax regime for our pubs and brewers and incentivise investment.”
The Scottish Hospitality Group also echoed their support: “The Scottish Hospitality Group have been calling for a VAT reduction now for a long time. The benefits of a permanent lowered VAT rate to both the economy and business are massive at a time when hospitality businesses are being crippled with rising interest rates, unaffordable energy costs, and high inflation.
“The UK has the highest hospitality VAT rate across the whole of Europe, where rates vary between 6 and 10% for the sector. The hospitality sector was the hardest hit sector during the pandemic, and many are still struggling to repay delayed VAT bills, and Covid loans, so this leaves them on a knife edge, and in many cases unable to invest in growth.
“Our staff are the face of our businesses, and we want to make sure that they have a great experience in working in the sector, with good pay and conditions. The Government can help us to do this, by cutting the VAT rate.”
Speaking for UK Hospitality Scotland, Leon Thompson added: “Reduction of VAT to 5% would be very welcome for the Hospitality industry. Right now we’ve got a number of businesses who are really struggling for a number of reasons, especially with all the costs associated with inflation and also the energy bills that business are facing just now in.
“Cutting VAT would be a way in which businesses could reduce their overheads and trade more favourably … and could also potentially reduce their costs to customers.”
In his letter to Mr Sunak, Mr Smith observed: “I have raised this idea before with your Chancellor and appreciate that the present policy of your government is unpersuaded.
“But you proved when you were Chancellor that you could think creatively and move fast when the crisis demanded it, and I supported your actions. I must re-emphasise that the crisis for the hospitality sector is ongoing, accelerating, and I fear the oncoming winter will see many businesses go under.
“I keenly appreciate that the economic situation is challenging, and that every pound is a prisoner. But the consequences, social as well as economic, of losing as many hospitality businesses as I fear are at grave risk, represent nothing less than a death knell for many rural communities, as well as empty streets in our towns and cities.
“I will work with anyone to support these businesses, and hope that you will consider afresh the proposal,” said Mr Smith.
