Minister dashes hopes of VAT cut extension

By Jo Gilbert

Published: 27 January, 2021

A treasury minister has said there are “no current plans” to further extend the reduction in VAT for hospitality businesses despite estimates that rising rates could directly and permanently impact the sector and lead to the loss of up to 310,000 jobs.

Last year, VAT was reduced from 20% to 5% as part of a package of emergency measures to support businesses through Covid-related lockdowns.

The tax cut has already been extended once from September until 31 March 2021.

However, treasury minister Jesse Norman has now said that “the relief comes at a significant cost, and while the government keeps taxes under review, it has no current plans to extend it further”.

The comments significantly dampen hopes that Chancellor Rishi Sunak would extend the cut to VAT in his upcoming Budget on 3 March.

Lobbying groups have been pushing hard for an extension in recent weeks.

UK Hospitality (UKH) has repeatedly pushed for the cut’s extension alongside an extension to the business rates relief, which also runs out on 31 March.

Meanwhile, a survey conducted by UKH, the Cut Tourism VAT (CTV) Campaign and the Tourism Alliance and the Association of Leading Visitor Attractions, also showed the potential dire impact of rising VAT.

According to the survey, if the VAT rate reverts back to 20% in April, it could lead to serious cut-backs and job losses with estimates as high as 310,000 across the hospitality and tourism sectors.

“If the government wants to see a turbo-charged recovery in communities right across the UK then an extension of the VAT cut is the surest way to do it,” Kate Nicholls, CEO of UKH, said in mid-January.

The Wine and Spirit Trade Association (WSTA) and its members have also written an open letter to the Chancellor asking for an extension to the VAT hospitality cut until March 2022, to include all sales of alcoholic drinks, as well as a cut to alcohol duty on wines and spirits.

Miles Beale, CEO of the WSTA said “SMEs have worked hard, despite drastic dips to their income” and deserve “breathing space” from duty and VAT.

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