VAT increase will lead to ‘inevitable price increases’ says hospitality sector

The word hospitality apparently derives from the Latin “hospes,” meaning host, guest, or stranger.

Whether that friendliness is reciprocated by guests when ‘inevitable prices increases’ kick in because of the imminent rise in VAT, and they have to dig deeper, remains to be seen.

The hospitality industry covers many areas, from entertainment and recreation, dedicated to providing an entertainment service, to accommodation and travel and tourism.

But the largest sector, the food and beverage industry, will probably be hit the hardest when VAT on the hospitality sector returns to 20 per cent in April.

That has sparked a warning that double-digit price rises will follow.

A survey by industry body UKHospitality of 340 hospitality businesses suggests that half are saying rises will be 10 per cent or more, with many predicting rises of 20 per cent. The average rise is expected to be around 11 per cent.

They are saying in the survey that increases will follow as they have been hit by rises of:

  • 41 per cent in energy bills
  • 19 per cent in labour costs
  • 17 per cent in food prices
  • 14 per cent drinks prices
  • 21 per cent insurance costs
  • An imminent rise in the minimum wage

The danger venues face is that customers will baulk at the rises and vote with their feet. A Catch-22 for the industry.

The prediction comes hard on the heels of another survey, which resulted in hospitality trade bodies calling for a permanent VAT reduction.

The British Beer and Pub Association, UKHospitality, the Tourism Alliance and the Association of Leading Visitor Attractions have published a study, which claims benefits are ‘undeniable’.

They say the permanent cut will save the Government £4.6 billion and create over a quarter of a million jobs over the next decade

The report found that a permanent rate of 12.5 per cent VAT will bring VAT on hospitality and attractions in line with the European average, and promote industry investment and growth.

The report’s analysis of the impact of retaining VAT at 12.5 per cent shows:

  • The creation of 286,850 jobs over 10 years
  • Additional turnover of £7.7bn during the same period
  • Delivery of £4.6 billion in net present value to HM Treasury over 10 years
  • Returning a positive gain on the Government’s investment in less than five years.

The industry bodies say the report constitutes a compelling case for making the reduced rate permanent and demonstrates the benefits such a long-term investment can bring.

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Posted in Business.