Britain’s restaurants and pubs want a VAT cut, but the crisis runs wider than tax

Tom Kerridge has chosen a pointed moment to make his case. The chef, whose Hand & Flowers in Marlow remains the country’s only two Michelin-starred pub, is leading a campaign to halve VAT for hospitality from 20 per cent to 10 per cent. It is an argument designed to sound both practical and urgent: if ministers want pubs, bars, cafés and restaurants to survive the present squeeze, they must stop taxing them as though the trade were enjoying healthy margins and carefree demand. The intervention carries celebrity weight, but it also speaks to a more basic truth about the sector. For many operators, the maths has become brutally hard.

The figures published alongside the campaign help explain why the plea is gathering force. A survey conducted by UKHospitality, the British Beer and Pub Association, the British Institute of Innkeeping and Hospitality Ulster suggests a sector drifting from strain towards outright distress. Twenty two per cent of businesses said they were operating at a loss, up from 15 per cent only three months earlier. Five per cent said they were no longer financially viable at all. Twenty one per cent reported having no cash reserves, while 43 per cent said they had between one and six months of cash left. Sixteen per cent feared they could be forced to close within the next year. Those are not the numbers of an industry asking for a marginal advantage. They are the numbers of one warning that a significant cull may already have begun.

The trade bodies’ language was correspondingly stark. They said the heavy tax burden on hospitality was having a devastating effect and that the number of businesses operating at a loss was accelerating rapidly. That phrasing matters because hospitality has long been adept at presenting itself as resilient. It survived lockdowns, social distancing, energy shocks and the erratic habits of post-pandemic consumers. What it now confronts is different. The challenge is not one dramatic event but a tightening vise: higher employers’ national insurance contributions, a rise in the minimum wage, elevated borrowing costs for those carrying debt, and customers who still want an evening out but think harder before ordering a second bottle of wine or an extra course.

Kerridge’s proposed solution is politically simple, which is one reason it has travelled so quickly. Britain, he argues, levies one of the highest VAT rates on hospitality in Europe. He points to Ireland, where the rate for the industry is being cut from 13.5 per cent to 9 per cent from 1 July. The contrast is useful because it frames the British settlement as a choice rather than an inevitability. If comparable economies have decided hospitality deserves a lower rate because of its role in employment, tourism and local life, why should Britain persist with a standard rate that restaurant owners and publicans increasingly present as punitive? That is the emotional and political core of the campaign branded “VAT’s the problem”. It asks ministers to see a meal out or a pint at the pub not merely as discretionary spending but as part of the social infrastructure of towns and cities.

The argument has found willing allies. Among those backing the campaign are Nick Mackenzie, the chief executive of Greene King, Thomasina Miers, the co-founder of Wahaca, and the chef and restaurateur Ravneet Gill. Their support gives the effort breadth across the industry, from large pub estates to branded casual dining and independent restaurant culture. It also gives the campaign a public face beyond spreadsheets and policy notes. Hospitality has always had an easier route into the national conversation than many industries because it is woven into everyday life. Closures are visible. The boarded windows of a pub or neighbourhood restaurant are not abstract data points. They are signs of diminished local confidence, fewer jobs for younger and lower-paid workers, and another small retreat from the idea that high streets should offer something besides convenience stores and empty units.

There is a further political dimension in the emergence of Andy Burnham as a sympathetic voice. The presumed prime minister-in-waiting has argued for bringing Britain’s 20 per cent VAT rate into line with the European average of 12.8 per cent, explicitly linking the case to the social value hospitality businesses bring to communities. Whether that position survives the encounter with Treasury orthodoxy is another matter. Chancellors are rarely eager to surrender a revenue stream, particularly when public finances are already strained and departments are competing for funds. Yet Burnham’s interest matters because it signals that hospitality’s complaints are no longer being treated solely as the special pleading of one sector. They are beginning to be heard as part of a broader conversation about growth, regional vitality and the visible decline of many town centres.

The Treasury, however, will not lack rebuttals. The hospitality, leisure and tourism sectors received more than £37 billion in grants, tax reliefs and loans during the pandemic, according to a government report. Ministers may argue, not without reason, that these industries have already benefited from extraordinary state support and that any further intervention must be judged against competing demands elsewhere. They may also wonder whether a VAT cut would reliably reach consumers in the form of lower prices or whether much of it would simply be absorbed by businesses struggling to restore their margins. A tax cut can save a business, but it can also disappear into the general balance of costs, leaving customers no better off and the Exchequer markedly poorer.

This is the substance of the critique advanced by Dan Neidle, the lawyer behind Tax Policy Associates, who has argued that the VAT proposal is badly targeted. In his assessment, 45 per cent of hospitality businesses, those most vulnerable to cost increases, did not pay VAT at all. On that view, a reduction in the rate would chiefly benefit larger operators that are already above the registration threshold, while doing comparatively little for the small, fragile businesses that campaigners often cite as the sector’s soul. Neidle’s alternative is more precise if less glamorous: reform business rates and reduce the burden of employers’ national insurance. It is a less slogan-friendly programme, but the Treasury has often preferred targeted reliefs to broad tax cuts, precisely because broad cuts can reward those best placed to survive anyway.

That objection should not be dismissed lightly. Hospitality is often spoken of as if it were one unified trade, but a Michelin-starred pub in Buckinghamshire, a city-centre cocktail bar, a roadside inn, a family-run curry house and a local sandwich shop do not experience the state in quite the same way. Some are labour-intensive, some debt-laden, some squeezed hardest by rent, some by utilities, some by the simple fact that customers are trading down. For businesses below the VAT threshold, the campaign may sound emotionally resonant yet materially remote. Their crisis has less to do with output tax than with payroll and occupancy costs. In that sense, the VAT campaign may be both true and incomplete. It identifies a pressure point, but not the whole anatomy of the illness.

Even so, it would be a mistake to treat the proposal as cosmetic. Tax shapes behaviour, and hospitality is peculiarly exposed to the cumulative effect of state policy because it sells discretionary experiences in intensely competitive local markets. A pub cannot move production abroad, automate the essence of service or warehouse demand until household confidence improves. It opens the doors each day and hopes enough people come through them. When costs rise across wages, taxation and borrowing, there is limited room to respond. Prices can increase only so far before customers retreat. Portions can shrink only so much before diners notice. Staffing can be trimmed only to the point at which service deteriorates and repeat trade begins to suffer. Many operators have already exhausted the usual repertoire of defensive measures.

The public mood adds another layer of difficulty. Britons have not ceased to go out, but they have become more selective. A meal that might once have been routine has become a considered purchase. The hospitality industry is therefore caught in the familiar bind of the squeezed middle class and the hard-pressed working household alike: people still desire small luxuries, but they ration them. That is why the current wave of warnings feels more serious than standard industry lobbying. It is arriving at a point where costs are rising faster than operators can sensibly pass them on, and where demand is proving more brittle than headline employment figures alone would suggest.

Kerridge’s petition has already attracted more than 241,000 signatures, which tells its own story about the emotional pull of the issue. Britain is attached to its pubs and restaurants, and politicians know it. Yet sentiment alone will not settle the argument. The real policy question is whether ministers view hospitality as a strategic employer and a civic good worth subsidising through the tax system, or as another consumer-facing industry that must adjust to harsher conditions with only selective help. If they choose the latter, closures are likely to mount and the industry will contract into something more cautious, more expensive and less socially broad. If they choose the former, they will still have to decide whether VAT is the right lever or merely the loudest one.

For now, the campaign’s significance lies in what it reveals about the state of the sector. Hospitality is no longer asking for a pandemic-style rescue, nor is it simply complaining about a difficult trading quarter. It is warning that the cost structure of doing business in Britain is becoming incompatible with the kind of places governments routinely praise as anchors of community life. Whether the answer is a VAT cut, a rethink on national insurance, relief on business rates or some combination of the three, the central message is harder to ignore than ministers may wish. An economy that says it values vibrant high streets and social cohesion cannot be entirely indifferent to the conditions under which the pub, the café and the neighbourhood restaurant are expected to survive.