The UK hospitality sector has dealt a blow to the government's 'Great British summer savings scheme', branding the temporary VAT cut on children's meals as inadequate and even 'laughable'. The initiative, which reduces VAT from 20% to 5% for under-18s' meals between 25th June and 1st September, has been met with disdain by industry leaders, who argue it is too small to make a meaningful impact.
Industry figures estimate that an additional £5 billion in costs have been borne by the sector since Labour returned to power in 2024. This includes increased national minimum wage, higher National Insurance contributions, and changes to business rates. Clement Ogbonnaya, owner of the Prince of Peckham pub, labelled the summer VAT discount a 'token gesture' that falls short of the permanent VAT cut he and many others advocate for.
The broader industry, represented by UK Hospitality, is pushing for a permanent reduction in VAT on all hospitality services from the current 20% to 10%. This proposal has garnered significant support, with a petition attracting over 200,000 signatures and backing from prominent figures including celebrity chefs and potential Labour leadership candidates. Proponents highlight that the UK's 20% VAT rate is considerably higher than the European average of 12.8%, with countries like France, Spain, and Italy charging 10%, and Germany 7%. Estimates suggest a permanent 10% VAT rate could cost the Treasury between £10.5 billion and £13 billion annually.
The Chancellor's efforts to reassure industry leaders have been met with scepticism, with one hospitality investor stating that 'actions speak louder than words' when it comes to supporting struggling businesses and families. Industry leaders are now calling for more substantial support, including a permanent VAT cut on all hospitality services. The future of the sector hangs in the balance as the government struggles to find the right balance between supporting the economy and managing public finances.
One affluent Kensington restaurant has already responded with a satirical £25 menu for 'children', which technically qualifies for the reduced VAT rate, but was intended to 'start the right conversations' about why VAT support for hospitality needs to go much further. The move highlights the frustration felt by many in the industry and the need for more effective measures to alleviate financial pressures.
Industry leaders have warned that a permanent 10% VAT rate would be crucial in helping businesses recover from the pandemic and respond to ongoing economic challenges. UK Hospitality estimates that this reduction could boost consumer spending, support job creation, and maintain business competitiveness across the sector.