More than 250 business leaders from hospitality and leisure have written to the Chancellor Rishi Sunak urging the Government to freeze VAT at 12.5%.

VAT is due to rise to 20% in April in what is being described as a "cliff edge for the hospitality industry". The rise in VAT will coincide with a rise in the national minimum wage, changes to business rate relief plus an end to the rent moratorium, which will impact thousands of operators.

Signatories to the letter, which was spearheaded by UKHospitality, are calling on a VAT freeze to enable fragile businesses to continue their recovery, protect jobs, and to help stave off rocketing inflation.

Kate Nicholls, CEO of UKHospitality, said: “There are many compelling reasons why VAT should be held at the current rate given the current circumstances. However, this is about so much more than an extension to temporary measures in the face of the challenges brought by Covid; it’s about working to establish the right tax level for our world-class hospitality and tourism industries.

“It is vital, in the interests of competitiveness, job creation, growth and ensuring hospitality and tourism play their full part in driving the economic recovery.”

The hundreds of signatories to the letter include business leaders from: Apex Hotels, BaxterStory, Bourne Leisure, Big Table Group, Caffe Nero, Center Parcs, Côte, Fuller’s, Greene King, Hilton, IHG Hotels and Resorts, JD Wetherspoon, Loungers, Marston’s, Mitchells & Butlers, Moto Hospitality, Nobu, Parkdean Resorts, Pho, Pizza Express, Pizza Hut, Punch Pubs, Revolution, Rekom, The Restaurant Group, The Savoy Hotel Group, Wagamama and Young’s, plus many more.

The letter highlights the success of the lower rate of VAT applied for tourism and hospitality (on food, accommodation and non-alcohol drinks) in enabling businesses to survive “the ravages of the pandemic”.

It also says the policy has enabled businesses to keep prices as low as possible, at a time where there is added cost pressures in the sector, including the cost of energy, transportation, wages and food and drink.

A major concern of the impact of the VAT rise is that businesses will have no choice but to significantly raise their prices, putting pressure on the cost of hospitality experiences and also further fuelling inflation across the economy.

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In a recent study of its members, 93% of companies said they intended to increase their prices by 11% in the next few months – double the headline rate of inflation (December 2021).

Nicholls added: “We are asking the Chancellor to give companies and consumers room to breathe. We have had a very challenging two years where hospitality was hit first, hardest and longest. This industry has borne the full brunt of the economic restrictions due to Covid. Companies have no cash in the bank and are being squeezed from all directions. They must pass costs on or go bust. The only question is by how much prices rise.”

The letter to the Chancellor comes hot on the heels of a joint study by UKHospitality, the Tourism Alliance, the British Beer & Pub Association, and the Association of Leading Visitor Attractions, which revealed a ten-year freeze in VAT would:

• Create 286,850 jobs

• Generate £7.7bn of additional turnover

• Deliver £4.6bn in net present value of fiscal gains to HM Treasury

• Return a positive gain on the Government’s investment in less than five years.