Nearly a quarter (23%) of pubs and restaurants across the UK are now operating at a loss, according to new survey data. This represents a significant increase from just three months ago, when 15% were struggling financially, highlighting the sector's growing vulnerability in the face of rising costs.
The findings coincide with the launch this week of the 'VAT’s the problem' campaign, which aims to reduce Value Added Tax (VAT) for the hospitality industry. The initiative, spearheaded by chef Tom Kerridge, seeks to lower VAT from its current 20% rate to 10%, a proposal estimated to cost the Treasury between £10.5 billion and £12 billion.
The sector's financial strain can be attributed to multiple factors, including soaring inflation (currently at 9%), increasing energy costs, and higher employers' National Insurance contributions and national minimum wage rates. Industry trade bodies have underscored the "devastating impact" of taxation on their members, which typically operate on thin profit margins.
The proposed VAT reduction has garnered support from some political figures, including mayoral hopeful Andy Burnham. Proponents argue that it would provide relief and help prevent further business closures. Notably, the UK's VAT rate on food and drink services is higher than many European countries, with an average of 12.8%, whereas countries like France, Spain, and Italy charge 10% or lower.
Despite some critics suggesting that a VAT cut might disproportionately benefit larger businesses, trade bodies maintain that it would be the "most impactful" measure to address the sector's difficulties. With one in six businesses reportedly at risk of insolvency within the next 12 months, the proposed reduction remains a contentious yet crucial issue for the hospitality industry.