VAT rises to 20% for the pub and bar industry

In a sector facing soaring costs and turbulent consumer confidence, the increase in VAT has given operators no choice but to pass on price rises, UKHospitality has warned.

VAT on sales of food and soft drinks in hospitality rose from 12.5% to 20% on 1 April 2022, at the same time as the sector is forecasting cost inflation running at 18%.

Industry body UKHospitality has said that the situation will result in double-digit price increases for consumers, as operators struggle to survive.

Recent business surveys show the industry is facing a 95% hike in energy bills, 19% in labour costs, and a 17% and 14% rise in food and drink prices, respectively. It is thought these pressures have worsened considerably in the last two weeks. 

UKHospitality has said that raising prices at this time will wreak havoc on consumer demand, further damage an already fragile sector and have a detrimental impact on the wider UK recovery, as the sector will be unable to play its full role in generating jobs, investment and tourism. Prior to Covid-19, hospitality created £130bn in economic activity, generated £39bn of tax for the Exchequer and represented 10% of UK employment.

"In April, hospitality is faced with a cliff edge, with an increase in national insurance, an increase in the national minimum wage and a substantial increase in business rates," says Charlie Gilkes, founder and director of The Inception Group. "This is on top of soaring energy and food costs. The government could have helped ease the pain and aided the recovery by keeping VAT at 12.5% for longer but now the sector is also faced with this returning to 20%. Inevitably this going to be incredibly tough to bear and will massively exacerbate inflation.”

The UK already has one of the highest rates of tax for food and accommodation Europe. In France and Spain, the VAT rate is set at just 10%, for example. 

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