Scott Wright: The lifeline move to lift hard-pressed pubs

UKHospitality posted on X, the social media channel formerly called Twitter, that its boss had met the Leader of the Opposition to “talk about the important role hospitality plays in the economy”.

The post added: “As one of the UK’s fastest growing sectors, action on business rates, skills and VAT is needed to help drive further growth & investment #Lab23.”

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That UKHospitality called for action on value-added tax was a reminder of how long this particular issue has been a bone of contention for tourism and hospitality. Industry campaigners have for many years been calling for the tax to be reduced in their sector, arguing that if a lower rate of VAT was applied in bars, restaurants, and hotels it would allow them to offer more competitive prices to consumers.

Over the years it has been stated that, although lowering the rate would reduce the Treasury’s take from the tax in the short term, UK Government coffers would actually benefit in the long run, the argument being that a busier hospitality trade (on account of lower prices) would attract more patrons and thus be able to employ more people who will in turn pay tax on their earnings. It has also been stated that a lower rate of VAT would give more operators the confidence to invest and develop their businesses.

Campaigners have highlighted the success of the hotel and restaurant trade in France, where there are lower rates of VAT for the industry, to back up their argument.

A further dimension to the debate is regularly aired by Tim Martin, founder and chairman of pub giant JD Wetherspoon, who regularly argues that pubs are at a significant disadvantage to supermarkets because the majority of food sold in grocery stores is zero-rated for VAT.

Wetherspoon stated as it published its results for the 52 weeks ended July 30 on Friday: “As we have previously stated, the Government would generate more revenue and jobs if it were to create tax equality among supermarkets, pubs, and restaurants.

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“Supermarkets pay virtually no VAT in respect of food sales, whereas pubs pay 20%. This has enabled supermarkets to subsidise the price of alcoholic drinks, widening the price gap, to the detriment of pubs and restaurants. Pubs also pay around 20p a pint in business rates, whereas supermarkets pay only about 2p, creating further inequality.”

Of course, there is recent precedent of the UK Government reducing VAT, which at 20% is one of the highest rates in Europe.

After the commercial impact of Covid restrictions was becoming clear in early 2020, ministers slashed VAT in hospitality to 5% to help businesses deal with the sharp downturn in trade. The 5% rate was in place from July 15, 2020, to September 30, 2021, before it was increased to 12.5%. The rate remained at 12.5% until March 31, 2022, at which point it returned to the standard rate of 20%.

UK Government ministers certainly made the right call when they slashed VAT for the hospitality trade when the pandemic struck. The move was welcomed by operators and gave much-needed breathing space to businesses that suddenly found themselves unable to trade or forced to operate under heavy restrictions.

Thankfully, the nightmare of the pandemic has passed. But with the industry now under pressure on a variety of other fronts, from surging costs and high interest rates to staff shortages and fragile consumer confidence, there is surely a strong case for ministers to look at VAT again.

The impact of those pressures was underlined in the latest snapshot survey issued last week by the Scottish Licensed Trade Association, which found the industry faced such “huge challenges” in recruiting staff that it was having a “domino impact on opening hours, the economic viability of our businesses, and our role as a key part of Scotland’s tourism industry”.

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With the survey finding that 68% of outlets are under-staffed, 58% still trading below pre-Covid levels, and 9% planning to close or at least consider their options, the SLTA declared that it was imperative the industry receives support from the Scottish and UK governments.

In a Scottish context, the organisation is calling for action to reduce the burden of business rates and has joined forces with the Scottish Beer & Pub Association to ask ministers to cut the poundage rate that is used by assessors to calculate rates. The current relief offered to small businesses in Scotland by Scottish ministers does not go far enough for the industry, the SLTA said.

At Westminster level, meanwhile, the organisation wants the UK Government to cut VAT.

Speaking to The Herald, Paul Waterson, SLTA spokesman and owner of the Golden Lion Hotel in Stirling, expressed the view that, with town and city centres across Scotland blighted by increasing numbers of vacant shop units, it has effectively left the hospitality trade to be the "saviour" of the high street.

But he said that will only be possible if the sector receives support to deal with the “barrage” of costs it is currently facing.

Mr Waterson said: “The saviour of the high street is going to be hospitality, but where are the incentives coming [from]? All those shops along Princes Street, and in towns like Stirling, Dundee and Paisley, the only thing that is going to save them is hospitality. [But] where is the incentive for us to do it?”

He added: “It [the industry] has never recovered from Covid. We need a real change in emphasis through rates, through VAT.”

Given the acute challenges facing so many of our town and city centres in the aftermath of the pandemic, he makes a convincing case.