Hospitality Sector VAT: Local Economies, Employment and Growth
Thursday, 12 November 2026
Contributions
[Dr Rupa Huq in the Chair ]
[Relevant d ocument: Correspondence from the Northern Ireland Affairs Committee to the Chancellor of the Exchequer, on the taxation of the hospitality and tourism sectors in Northern Ireland, reported to the House 22 October.]
Dr Rupa Huq (in the Chair)Labour
As it is more than 10 minutes past 3 pm and the Member in charge is not here yet, I call Tonia Antoniazzi to move the motion.
Tonia Antoniazzi (Gower) (Lab)Labour
I beg to move, That this House has considered the impact of VAT policy for the hospitality sector on local economies, employment and growth. It is an honour to serve under you chairship, Dr Huq; I am moving the motion on behalf of my hon. Friend the Member for Blackpool South (Chris Webb). Hospitality and tourism are not just industries; they are major employers, anchors of local economies and a vital part of the social fabric of communities right across the United Kingdom. Yet in my roles as Chair of the Northern Ireland Affairs Committee and chair of the all-party parliamentary beer group, we have seen that current VAT policy, combined with a range of other tax pressures, is placing hospitality businesses under significant strain and undermining their ability to compete. Our inquiry heard from hotels, pubs, restaurants, caterers and tourism operators across Northern Ireland. We travelled to Derry/Londonderry and met businesses on the ground. Their message was consistent and clear: the current tax environment is holding back growth, limiting investment and threatening the long-term viability of businesses that are already operating on tight margins. Hospitality businesses are contending with a perfect storm of rising costs. Increased employer national insurance contributions have also hit the sector, which relies heavily on part-time and lower-paid workers. We heard evidence that it is around 8% more expensive to employ someone on the minimum wage in Derry/Londonderry than it is just a short distance away from the border in the Republic of Ireland. Businesses also face high business rates and rising energy costs. Hospitality is an energy-intensive sector with little flexibility to move consumption away from peak trading hours. At the same time, consumer spending remains under pressure, particularly in Northern Ireland, where average wages remain lower than the UK average.
Gregory Stafford (Farnham and Bordon) (Con)Conservative
The hon. Lady is giving an excellent description of the problems happening in Northern Ireland, but they are happening in England, Wales and Scotland as well. I hold a regular quarterly meeting with my local publicans and hospitality businesses. They say repeatedly that the situation they face at the moment is worse than it was under covid, because at least under covid the Government stepped in to support them. The Government are now penalising them through all the things the hon. Lady just mentioned, such as the business rates increases—for one pub in my area they are going up by £32,000. That is just not sustainable, and there are the national insurance rises, too. Does she agree that although VAT is part of the picture, the Government really need to deal with all sorts of other parts of the tax system?
Order. The hon. Member’s remarks are a bit long for an intervention.
The hon. Member may question why, as a Welsh MP, I am not calling for a UK-wide reduction. I am not calling for that per se, but I do want to lay out why Northern Ireland is a special case and why it could be useful for the Government to do a pilot. The more striking issue raised during our inquiry was the impact of VAT policy on competitiveness. Hospitality businesses in Northern Ireland operate in a unique environment, competing not only with businesses in other parts of the UK, but directly with establishments in the Republic of Ireland, and therefore Europe. The Republic of Ireland’s hospitality services benefit from significantly lower VAT rates, including a 9% rate on food and catering services and a 13.5% rate on accommodation, compared with the UK’s standard rate of 20%. That disparity has real-world consequences. We were told that tour operators organising itineraries across the island of Ireland are increasingly choosing accommodation south of the border because of lower costs. Conference organisers, wedding planners and major event operators are making similar decisions. In many cases, Northern Irish venues simply cannot compete, despite offering excellent facilities and service. The result is real: lost business, lost investment and lost opportunities for growth. I wish to be clear: witnesses did not argue that VAT is the only challenge facing the sector, but many viewed it as the most straightforward and effective lever available to Government. A reduction in VAT would provide businesses with breathing space. It would improve cash flow, strengthen margins, support investment in premises and staff, help to absorb rising operating costs and enhance competitiveness in an all-island market. Importantly, businesses told us that the primary benefit would not necessarily be cheaper prices for consumers. Rather, it would allow businesses to remain viable, invest for the future and create the conditions for sustainable growth. That is why the Committee has called for the Government to introduce a four-year pilot scheme in Northern Ireland, reducing VAT to 10% on food, excluding alcohol, and on accommodation. A pilot scheme would provide an opportunity to gather robust evidence. It would give businesses sufficient time to adapt, secure new contracts, influence customer behaviour and demonstrate whether a lower VAT rate can stimulate economic activity, increase employment and ultimately generate broader returns for the public finances. Such an approach would not only benefit Northern Ireland; it could also provide valuable lessons for hospitality policy across the UK. We have also called on His Majesty’s Treasury to engage with the Irish Government and Tourism Ireland to examine the impact of Ireland’s recent VAT reductions and previous temporary cuts. If there is evidence that lower VAT rates in Ireland have supported growth, jobs and tax revenues, we should be willing to learn from Ireland’s experience. Hospitality businesses do not want special treatment. They want a fair opportunity to compete, and a tax system that recognises the unique pressures they face and the immense contribution they make to local economies. If we are serious about supporting jobs, encouraging investment and strengthening our tourism offer, we must recognise the role that VAT policy plays in shaping competitiveness. The case for a targeted VAT pilot in Northern Ireland is strong, the evidence is compelling and the potential rewards for growth and prosperity are significant. I urge the Government to listen to the sector and act accordingly.
Chris Webb (Blackpool South) (Lab)Labour
I apologise for my slight delay in being here, Dr Huq; I had a personal incident back home and I was just on the phone about it. As the chair of the all-party parliamentary group on hospitality and tourism, and the MP for a proud seaside town, I welcome this opportunity to talk about the important and timely issue of the role that VAT policy can play in supporting hospitality, tourism, employment and economic growth. Hospitality is an important industry for communities across the country, employing around 3.5 million people nationally. On average, it provides work for 5,000 people in each constituency, but for constituencies such as Blackpool South that average figure is more than doubled. Our visitor economy supports local jobs, attracts investment and drives regeneration. Hospitality is central to our economic success and our identity. Hospitality jobs matter to local people and to the town. For many people in Blackpool, including myself, hospitality gave us our first pay packet, our first reference and our first introduction to the world of work, and for many people that first job in hospitality turns into a career. I welcome the Government’s recent business rates freeze package for retail, hospitality and leisure. That freeze will benefit thousands of businesses in Blackpool. The changes to thresholds will mean that 68% of retail, hospitality and leisure properties in our town will now pay no business rates at all. That is a significant intervention, demonstrating that Ministers recognise the importance of these sectors. However, we need to go further. Alongside Kate Shane, CEO of Blackpool Tourism Ltd, I continue to make the case for a Blackpool tourism enterprise zone, building on the existing enterprise zone model and extending it to our hospitality and tourism economy to unlock further growth, investment and job creation.
Priti Patel (Witham) (Con)Conservative
It is very nice to hear about Blackpool and everything in the hon. Gentleman’s constituency; I declare that I have visited Blackpool on many occasions. Hospitality businesses in the Witham constituency have been hit just as hard by VAT on the sector, as well as by employment taxes and the cumulative burden of increased taxation. Would he consider working with all of us in this debate to get the Government to recognise that at the next fiscal event—which will be next year, or even in the Finance Bill, when it arrives—by making changes to the VAT regime for hospitality, which is such an important sector?
I thank the right hon. Lady for her intervention. I hope that my actions as the chair of the APPG on hospitality and tourism for the last two and a half years have shown that I will work with anyone across this House to support hospitality. The APPG has been quite vocal, including in our inquiries, about why there is a need to lower VAT, and we will continue to make that case. Thousands of residents in my constituency have backed my idea to build a state-of-the-art arena at the Blackpool Central site, and we also have Government support for this proposal. However, by going further to support our tourism businesses at a policy level, we can give large investors the confidence to come to Blackpool, and ensure its future as a modern and leading entertainment destination, especially as we are in the final of the city of culture contest, which I know we will win. Blackpool was built as a place of rest, relaxation and entertainment for the working classes, and our visitors today continue to be highly price-sensitive. Blackpool prides itself on being able to offer a good family trip for the price of car parking, an ice cream and a fistful of 2p coins to feed the arcade machines. Thanks to the work of Blackpool council and Blackpool Tourism Ltd, we offer large-scale free events, ranging from our brilliant airshow to the Blackpool Illuminations, which bring hordes of tourists to our coast in search of a family budget-friendly trip. However, we also rely on families spending much more money than they do already. When offered value for money, they will do so, but small increases in the cost of accommodation, meals, attractions and entertainment influence how long a family chooses to stay.
Mike Wood (Kingswinford and South Staffordshire) (Con)Conservative
The hon. Gentleman is making a powerful speech about the importance of the hospitality sector and the impact of even relatively small increases in costs for families. Does he agree that the Government ought to drop their proposals for an overnight visitor levy, which will only make accommodation more expensive for the families visiting his constituency?
The hon. Gentleman has clearly had a quick glance at what I am coming to next in my speech. I welcome the fact that visitor levy receipts will stay local and will support tourism-related priorities, but businesses in places like mine have understandably raised concerns about the cumulative impact of rising costs. The levy is just one more addition to a growing list. What might work in the centre of Manchester does not work in coastal communities like Blackpool.
George Freeman (Mid Norfolk) (Con)Conservative
The hon. Gentleman is making a powerful point about Blackpool. I have many happy memoires of large party conferences there back in the day. He is talking about urban hospitality, but I want to make a plea for rural hospitality. My Mid Norfork constituency has 135 villages and 50 pubs, which are the heartbeat of the community; many businesses meet in them, and they are warm places in the winter. They are being hammered by high energy costs and the jobs tax, the tourism tax and the other taxes the Government have introduced. Rather than a £10 billion VAT cut for everyone, can we have targeted relief to rural hospitality venues, which are dying, along with the rural economy?
The APPG has raised similar issues in our inquiries. We have said to the Government, at not just this Budget but the previous one, that we need to look at support packages, rather than sector-wide schemes. If the money is not available, we need to look at where the need is greatest right now. The World Economic Forum’s travel and tourism development index places the UK 113th out of 119 countries for price competitiveness. Blackpool faces growing competition from domestic destinations and international markets, where hospitality VAT rates are often significantly lower. Every £1 spent by a visitor in Blackpool moves through the wider economy to local suppliers, taxi drivers, independent retailers and cleaning businesses. When a family has a good weekend away, the benefit is felt far from the till. If the Government want to invest in places such as Blackpool to deliver maximum value, they must also consider the tax environment in which our businesses operate. Our town continues to face significant challenges with economic inactivity and young people who are not in education, employment or training. It is not just the lack of jobs: our young people are navigating entrenched multi-generational poverty, housing insecurity, caring responsibilities and poor health. They deserve the opportunity to get their lives on track. As I have said many times, hospitality is the sector best placed to give them their first step. I therefore welcome the partnership between the Government and major hospitality employers, facilitated by UKHospitality, which will deliver 100,000 opportunities for young people. But if we want businesses to create more jobs, take on more apprentices and invest in training, we must ensure that they have the confidence and capacity to grow.
It is busy! We will work our way round.
Mims Davies (East Grinstead and Uckfield) (Con)Conservative
The hon. Gentleman mentioned the wider economic impact. East Grinstead has the headquarters of the Caravan and Motorhome Club, which provides access to more than 2,200 campsites, glamping and all sorts of wonderful places. It will be affected by the overnight visitor levy, which means that a meal out and other things families want to do on those holidays just will not happen. Does the hon. Gentleman agree that that is what this means for families?
Order. We have half an hour to get everyone in. I hope Chris Webb will conclude so that other people can get in.
I understand the point the hon. Member for East Grinstead and Uckfield (Mims Davies) makes, and I have heard it from caravan businesses and parks in my constituency. That has to be part of the discussions after the Second Reading of the Visitor Levy (England) Bill.
Jessica Toale (Bournemouth West) (Lab)Labour
rose—
I give way to my hon. Friend.
Order. No, you are not taking any more interventions. There is a hard stop at 4 pm, and we need to hear from the Front Benchers.
The Great British summer savings scheme, which temporarily reduced VAT on attractions this summer, is a good case study of the potential impact of policy changes on local economies, employment and tourism. The scheme recognised that targeted VAT reductions can support both consumers and businesses, as can free bus travel. Take the award-winning Blackpool pleasure beach in my constituency. During the pandemic, when VAT was cut to 5%, the park’s turnover rose, and it recorded an exceptional profit of £10.5 million—the biggest in years. As a consequence, it paid £1.9 million more in tax to His Majesty’s Revenue and Customs. Over the summer, businesses in my constituency were saved because of the summer savings scheme. What assessments has the Minister’s Department made of the impact of rising costs on hospitality businesses, business investment, employment and opportunities for young people? What assessment has been made of the potential impact on local economic growth of reducing hospitality VAT? I look forward to hearing more from colleagues and to the Minister’s response.
I am setting a hard time limit of three minutes for everyone from now on.
John Lamont (Berwickshire, Roxburgh and Selkirk) (Con)Conservative
It is a pleasure to serve with you in the Chair, Dr Huq. Whether it is a seaside town in Lancashire or on the Berwickshire coast, the story is much the same. In the coastal town of Eyemouth, next to the harbour, stands Giacopazzi’s, which was established in 1898 by Lorenzo Giacopazzi. Arriving in Scotland on his way to America, he instead decided to stay on the Scottish coast to seek his fortune. The business has been run by his family ever since, becoming famous for its fish and chips and award-winning ice cream. The family has recently invested in a new ice cream factory, a bar and bistro, and holiday accommodation. However, Peter Giacopazzi has written to me, as have many hospitality businesses across my constituency, to say that pressure has never been greater. The costs of employer national insurance, wages, energy and ingredients have all gone up. On top of that sits VAT at 20%. In the borders, hospitality is the lifeblood of the high street. From the hotels of Kelso and Melrose to the cafés of Hawick and Galashiels and the bed and breakfasts at St Abbs and Coldingham, these businesses are often a town’s largest private employers, providing our young people with the opportunity to take that all-important first step into the world of work. At the same time, many of these businesses in the Scottish Borders, Scotland and across the UK are competing for customers who might otherwise go to Europe. Our hospitality VAT rate is the second highest in Europe. France, Italy and Spain charge 10%, Ireland charges 9%, and Germany charges only 7%. The consequences are bleak. UKHospitality reports that three hospitality businesses have closed every day this year, and nearly 100,000 jobs have been lost across the sector. There is no doubt that lowering the rate of VAT would help save jobs.
Mr Gagan Mohindra (South West Hertfordshire) (Con)Conservative
My hon. Friend is making an excellent speech. As the shadow Minister, my hon. Friend the Member for Grantham and Bourne (Gareth Davies), will be aware, the Laffer curve says that if we tax something, we discourage it. Does my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk agree that the Government’s increase in employer national insurance contributions means they are forcing companies and businesses not to expand and, in some cases, to close down?
My hon. Friend makes an excellent point. We taxed smoking to try to stop people smoking, and the Government’s philosophy seems to be that they are taxing jobs to try to stop people being employed. During the pandemic, hospitality VAT was cut to 5% to help businesses to survive. The Prime Minister has spoken in favour of a rate more aligned with Europe. Last month’s Budget was the chance to make that change, and it was missed. Business rates in Scotland are, of course, devolved so changes to rates in England do nothing for businesses in my constituency. However, VAT is UK-wide, so a cut would reach every hospitality business in the country, including those in the Scottish Borders. My ask of the Minister, on behalf of the hundreds of businesses across the Scottish Borders that are desperate for financial relief, is that the Government reduce the pressure on businesses by looking again at a reduced VAT rate for the sector. Businesses such as Giacopazzi’s have served our communities for hundreds of years. Let us give them a fighting chance to survive, Minister.
Brian Leishman (Alloa and Grangemouth) (Lab)Labour
It is a pleasure to have you in the Chair, Dr Huq. I thank my hon. Friend the Member for Gower (Tonia Antoniazzi) for being a super sub and introducing the debate. I also thank all the publicans from across Alloa and Grangemouth, but especially Craig and Greg from the Royal Oak in Alloa for their time and for telling me about the impact that 20% VAT has on their business. Of course, hospitality venues must deal with more issues than just VAT. Those include soaring business rates, which Scottish pubs do not get relief from, the increase in alcohol duty, and crippling energy rates. There is no doubt about it: the pub game is extremely tough. In Scotland, a pub closes on average every four and a half days. This year, that amounts to roughly 600 jobs lost. It is widely acknowledged that independent pubs often struggle to compete with the industry big guns such as Wetherspoons and Greene King. Those chains can negotiate lower prices for products and absorb loss leaders, and their profit and loss accounts are more able to sustain the cost of overheads. With VAT at 20%, many independent pubs have to put prices up or cut costs. That may mean reducing opening hours, closing for full days or, sadly, job cuts. It definitely means being unable to grow their business. Quite simply, pubs in my constituency and all over Scotland need help. Reducing the VAT rate would give venues much-needed “breathing space”—something that means a lot to my Chancellor. Businesses could employ more staff and boost local economic growth—something that means a lot to our Prime Minister. Alloa and Grangemouth has more than 550 hospitality establishments, with more than 3,200 people employed, bringing more than £100 million of annual economic value. Pubs and restaurants are essential to life in Alloa and Grangemouth and all of Scotland. That is why I support calls to lower VAT for hospitality businesses. Minister, let’s get behind these businesses and help them grow and thrive.
Mr Paul Kohler (Wimbledon) (LD)Liberal Democrat
It is an honour to serve under your chairship, Dr Huq. I refer Members to my entry in the Register of Members’ Financial Interests. I own CellarDoor, a small bar in Covent Garden, so I do not speak about hospitality in the abstract. I know what it means to have to find the money to make payroll in a bad month, to cut a shift I would rather keep and to wonder whether the doors will open next year. We converted CellarDoor from a disused underground gentlemen’s toilet 20 years ago. We have weathered the financial crash, Brexit and covid, but I have never known it as hard as it is now. The new Prime Minister promised much, but his Chancellor delivered little. The Night Time Industries Association called the Government’s latest Budget “deeply disappointing” and said that it failed “to deliver the meaningful support” the sector “desperately needs”. Raising the business rates relief threshold is welcome, but in Wimbledon just 1% of my local businesses will benefit. The hospitality industry is not a nice-to-have; it is an essential part of the economy, the largest employer of young people and school leavers, and the backbone of communities up and down the country. It invests £7 billion in high streets annually and supports 3.5 million jobs. Across Wimbledon, the hospitality sector provides more than 4,200 jobs and brings £150 million into the local economy, but our pubs, bars, hotels, restaurants and cafés are feeling the strain. Craig Hurring of Love Wimbledon told me that businesses are facing “a perfect storm” of increased employer national insurance contributions, above-inflation uplifts to the minimum wage and continuing weak consumer confidence. Nationally, the toll is stark. We are losing the equivalent of 13 night-time venues a week, while 100,000 jobs in the hospitality sector were lost in two years. Something must be done. The simplest lever is VAT. Our current rate of 20% is double that of some of our European neighbours.
Leigh Ingham (Stafford) (Lab)Labour
Does the hon. Gentleman know when the rate was raised to 20%, and which parties were in government when that happened?
The issue is absolutely now, not the past. In Spain, hospitality pays a reduced rate of 10%, while across our one land border the Republic of Ireland has reduced VAT on hospitality to as low as 9%. We know that VAT cuts do work because we have done it before, during the pandemic. This summer, we learned that lower VAT brings more people through the door and helps struggling businesses. Minister, will the Treasury commission a full cost-benefit analysis of reducing VAT on hospitality—not just the headline cost, but also the return in jobs, growth and lower welfare spending? The Night Time Industries Association has produced an analysis suggesting that it would have a net positive effect on the Government’s fiscal position—I think that is what we call a win-win. In short, hospitality is in crisis. There is no point in the Government giving a little with one hand while continuing to take far more with the other. The time has come for real action, not warm words.
Alex McIntyre (Gloucester) (Lab)Labour
It is a pleasure to serve under your chairship, Dr Huq. If not for hospitality, I would not be here today—quite literally, because my parents met while working second jobs in a pub in north London. Later, they ran a small bed and breakfast, where I was cleaning rooms and serving breakfasts from an age I probably should not advertise here. I cooked my first full English for paying guests at 13 years old, and at the same age started working in the local pub as a pot wash. At 15, I moved to front of house at another hotel, where I worked for more than seven years. Hospitality gave me many of the skills that led me to this place, and I care deeply about the sector. Times are tough. Small businesses across Gloucester tell me time and again about rising energy bills and soaring food prices, driven up both by the wars in Ukraine and the middle east, and by the tax burden they face. But in the middle of this difficult patch, Gloucester’s hospitality sector continues to deliver for local residents. Dr Foster in our docks was named best town pub at this year’s Great British pub awards, a real testament to the team there. We have fantastic independent coffee shops such as Coffee House 43, Forum Coffee and the Roastery, and brilliant restaurants such as Topoly’s Italian on Southgate Street. Just last Sunday, I was in The Fountain Inn for a fantastic roast dinner in between Remembrance Day services. Many of those businesses have asked for a cut in VAT; I understand those calls, but I also recognise that in the current economic climate, that is a challenging decision for any Government to deliver. Any tax cut, proposed by any party, needs to be paid for, but that does not mean that we should not be supporting our hospitality industry, and in particular targeting support for local, independent small and medium-sized enterprises. I welcome the Government’s recent announcements on business rates: a 20% cut for pubs, clubs and music venues from April and taking around 70,000 smaller hospitality and retail businesses out of business rates altogether.
Does my hon. Friend agree that, if the Government cannot go the full way on the VAT cut that some in the hospitality sector are proposing, they should consider Hospitality Voice’s proposal, which is backed by research from Bournemouth University, for an emergency, time-bound cut from 20% to 13%? That would be an affordable alternative way to protect jobs and boost local economic activity.
My hon. Friend makes an eloquent point raising important research from her constituency, and I am sure that the Minister has heard her intervention. I welcome the fact that the Government have made a start on business rates. I have continuously raised that issue with Ministers on behalf of Gloucester business owners, and it is good to see action. I know that the Minister shares my commitment to our hospitality industry, so it would be helpful if he set out how the Government intend to go further to support hospitality businesses in Gloucester. For future generations, I know how important a first job in hospitality can be. We have 2,500 young people not in employment, education or training in Gloucester; that is why I am hosting the Gloucestershire futures summit later this month at Kingsholm rugby stadium. Can the Minister set out how the Government will make it easier for hospitality businesses to hire young people and offer the part-time weekend jobs that are the springboard for many young people in my city? Our pubs, cafés and restaurants are where Gloucester comes together. I owe my family to the jobs that they create. Let us make sure that they are still there for the next generation.
There are still nine people left and a hard stop at 4 o’clock, so there will be an immediate time limit of two minutes, although perhaps not everyone will get in.
Seamus Logan (Aberdeenshire North and Moray East) (SNP)Scottish National Party
It is a pleasure to serve under your chairship, Dr Huq. I congratulate the hon. Member for Blackpool South (Chris Webb) on securing this debate. I rise in support of small hospitality businesses. I hope that the Minister can discern the difference here; I am not speaking about large hotel, coffee shop or pub chains. If the Government are serious about supporting small hospitality businesses, protecting jobs and sustaining our high streets and coastal towns, they must act on VAT for those businesses. There will be real consequences if they do not: fewer jobs, less opportunity and, ultimately, weaker local economies. Yet, at the same time that these costs rise for those businesses, they are expected to compete with a VAT rate that remains stubbornly high compared with those of our European neighbours. In February of this year, the Prime Minister, then Mayor of Greater Manchester, publicly said that he would argue for a hospitality VAT rate in line with Europe. It was so disappointing that in the first Budget under his leadership there was nothing about VAT for small hospitality businesses. This week, he said that that Budget was incredibly popular. I simply do not know what planet he is on. We have a situation where businesses are struggling to recruit, facing rising employment costs and dealing with high VAT all at the same time. Ultimately, this is not just about balance sheets; it is about the local café that sponsors the local football team, the pub that hosts community events and the family-run restaurant that has been passed down through generations. It is about The Captain’s Table and Mrs Maitland’s café in Fraserburgh, and the Saplinbrae Hotel in Mintlaw—those are the family businesses that I am speaking about. They are places that bring people together, create jobs, support local suppliers and give our towns and villages their character. They deserve more than warm words; they deserve action. I urge the Minister to look again at VAT for small hospitality.
Mary Kelly Foy (City of Durham) (Lab)Labour
It is a pleasure to serve under your chairship, Dr Huq. I am proud to represent so many outstanding hospitality businesses. Whether it is the Kingslodge Inn off Flass Street, Daisy Rose Coffee House in Cheveley Park, Adventure Valley in Brasside or the many other independent cafés, pubs and attractions across my constituency, hospitality businesses contribute enormously to community life. Hospitality is one of the UK’s largest employers, supporting 3.5 million jobs and providing vital opportunities for young people. For many, hospitality businesses provide that crucial first opportunity to gain skills, confidence and work experience, helping them to build long-term careers. In Durham, hospitality is also central to our visitor economy. People come to enjoy our UNESCO world heritage site, which includes the magnificent Durham cathedral and castle, to attend events such as the Miners’ Gala and the Durham Fringe Festival, to enjoy performances at the Gala theatre and to experience everything that our fantastic city has to offer. At a hospitality roundtable I hosted, many businesses raised concerns about costs and competitiveness, particularly around the UK’s VAT rate for hospitality, which is higher than that of many European countries. As businesses continue to face significant pressures, it is right that we consider how the tax system can best support growth, investment and jobs. I welcome the Government’s commitment to delivering growth in every postcode and supporting our high streets. Will the Minister outline what assessment has been made of the impact of current VAT arrangements on hospitality employment and investment? What consideration has been given to the role VAT policy could have in supporting local economies and regeneration in the city of Durham?
Robbie Moore (Keighley and Ilkley) (Con)Conservative
When a pub closes in Keighley, it is not just that we lose a business: the high street loses footfall, a teenager loses their first job opportunity and a community loses one of the best places for everyone to meet. In my constituency, hospitality is the beating heart of our economy; from Timothy Taylor’s, brewing in Keighley since 1858, to the pubs, cafés and guest houses that welcome visitors, hospitality businesses support thousands of local jobs, and right now, every one is being squeezed by a Labour Government that treat them as a cash cow, and not as the valuable assets that they are. Ministers have already piled £6.8 billion of new costs on to hospitality businesses through two Budgets, the jobs tax, the cut to rates relief and the Employment Rights Act 2025. Right now, a likely £1.6 billion tourism tax will be hitting businesses like those across Haworth and Ilkley. What is the result? According to UKHospitality, 100,000 hospitality jobs have been lost in two years, making up 45% of all jobs lost across the entire economy. One in four businesses are losing money, and one in six fear they could fail within a year. With around 30% of young people getting their first jobs in hospitality, it is the next generation that is paying the price of this Labour Government. I have three questions for the Minister. Do the Government accept that their Budget has cost the sector hugely? Will they scrap the tourism tax? Will the Prime Minister finally honour his words of February this year and support a VAT cut? The pubs, the cafés and the hospitality sector across Keighley and Ilkley do not want more warm words. They need a Government that stop taxing them out of existence.
Dr Simon Opher (Stroud) (Lab)Labour
In my constituency, we are incredibly fortunate to have loads of thriving community independent pubs, restaurants and cafés. As my hon. Friend the Member for Gloucester (Alex McIntyre) said, many of us had our first jobs in pubs. I have been speaking to a number of people in independent hospitality businesses, such as Greg at Stroud Brewery, the irreplaceable Lotte and Miles at the Prince Albert, Fred Hulls at The Royal Oak in Wotton-under-Edge and others in many other pubs in my area. I welcome the steps taken by the Chancellor in the recent Budget to reduce the burden of business rates. Increasing the small business rates relief threshold has taken hundreds of our local businesses out of the rate systems altogether and many other venues have benefited from a two-year freeze. One thing that many publicans talk about, however, is VAT, which creates a big financial burden. As has been said, we charge 20% VAT, which is a lot higher than most of Europe. I support a targeted reduction; we must be careful, because a universal cut in VAT for hospitality would cost about £12 billion and give McDonald’s about £400 million, which I am not in favour of. However, a targeted solution such as that proposed in Bournemouth is surely the way forward, so that our smaller pubs and hospitality venues can benefit. I hope that Ministers will go further and examine the case for VAT relief. We must protect an industry that supports jobs—for many of us, our first jobs—strengthens our local economies and brings our communities together.
Tom Gordon (Harrogate and Knaresborough) (LD)Liberal Democrat
It is a pleasure to serve with you in the Chair, Dr Huq. Harrogate is often referred to as the jewel in the crown of North Yorkshire’s cultural offering. We have the flower show, the Great Yorkshire Show, the Harrogate International Festival, which is celebrating its 60th year, the conference centre and much more. We have the likes of the Great Knaresborough Bed Race in the town next door, which also has its iconic castle and viaduct. That means that we have a slew of fantastic hotels, pubs and cafés that support the important visitor economy in our area. After the Budget a few weeks back, I held my second post-Budget business breakfast with the Harrogate District chamber of commerce. The thing that really came through was that they felt that the Budget was a missed opportunity to support the lifeblood of our local economy. They called for a VAT cut, which would help to reinvigorate our high streets, get young people into work and support the local economy, and were left disappointed with the Budget’s lacking ambition. UKHospitality has a well-publicised campaign, “VAT’s the Problem”, to cut VAT to 10%. I suggest to the Minister that, if a cut to 10% would be too much, he could pick up Lib Dem plans to cut VAT to 15%. If we do not do something, we will see more businesses shut up shop and a further decline in our high streets. All that comes at the same time that the Government are looking to introduce a visitor levy, which would add to and compound those same problems. Will the Minister meet with Members who have made that point today and look again at a cut to the VAT?
It is a pleasure to serve under your chairship, Dr Huq. I commend my hon. Friends the Members for Blackpool South (Chris Webb) and for Gower (Tonia Antoniazzi) on this debate on an important topic that comes up a lot locally for me. Like other Members, I have many businesses in my constituency concerned about rising costs and calling for greater stability. I recently had a lengthy discussion with Adam, the landlord of The Royal Oak—I think that is the third Royal Oak to be mentioned today—an award-winning independent pub in Church Eaton in my constituency. He was candid with me about the reality of running an independent pub. Before I go into detail on the challenges he faces, I want to take a moment to note what an incredible steward he is of this wonderful community asset. The Royal Oak was acquired back in 2020, when members of the village clubbed together and put their mortgages on the line to save it. The period since then has been turbulent, including the pressures of the pandemic, but they have persevered because The Royal Oak is central to village life. Adam has personally committed to giving back to youngsters from the area the same opportunities he got as a young man. Right now he employs two local young lads, but the reality is that he and his family are working many unpaid hours because of spiralling costs. Another award-winning business in Stafford, Jojo’s Fish & Chips, also shared with me their very real concerns. I will quote the owner, John, directly: “It’s not a handout we are looking for; it is about creating a fairer system that enables small businesses to not only survive but also to thrive.” I totally agree with him. We should be encouraging growth in our communities. I welcome the business rates review currently under way and look forward to its outcome, which will be essential for pubs. However, we must ensure that any cuts to VAT are targeted effectively so that support reaches those who need it most, rather than simply boosting the profits of large corporations that do not face the same pressures as our independents. I would welcome hearing more from the Minister on whether we are considering different rates and targeted approaches so that support can be focused on the independent businesses at the heart of our communities.
Graham Leadbitter (Moray West, Nairn and Strathspey) (SNP)Scottish National Party
It is a pleasure to serve under your chairship, Dr Huq. I commend the hon. Member for Blackpool South (Chris Webb) for securing the debate and the hon. Member for Gower (Tonia Antoniazzi) for moving it. First, I reiterate the SNP’s steadfast, long-standing support for an immediate reduction of hospitality VAT to 10%. From the highlands to the borders, hospitality is the beating heart of our communities, yet our pubs, cafés, restaurants and hotels are being crushed under the perfect storm of soaring energy costs, food inflation and the UK Government’s hike to employer national insurance contributions.
Ben Maguire (North Cornwall) (LD)Liberal Democrat
A very well-known hotelier in my constituency said that if he had known about that national insurance rise, he would not have opened a particular hotel and potentially not given all its job opportunities to young people. Does the hon. Member agree that a targeted national insurance cut for young employees would be a good way to boost the hospitality sector?
Yes, absolutely. That was well debated this week, and we supported it. The sector pays an unsustainable 82p in business taxes for every £1 of profit. The Prime Minister has previously recognised the situation and has stated his support for cutting VAT for the hospitality industry. Now that he sits in Downing Street he must finally match his past rhetoric with action. That call does not come from the SNP alone; it is backed by an overwhelming coalition. Over 400,000 people, including 100 leading chefs, have backed the “VAT’s the Problem” campaign, alongside UKHospitality and the British Beer and Pub Association. The public demand is deafening—and nowhere is that clearer than in my community. Of all constituencies in the country, Moray West, Nairn and Strathspey recorded the highest number of signatures—616—to the recent parliamentary petition calling for a 10% VAT rate on hospitality. We have already felt heartbreaking losses. Many venues are struggling to recover after devastating summer wildfires that kept visitors away from affected areas. Champions of our local hospitality economy are backing that campaign to stay afloat, including—among many others—Scribbles restaurant in Elgin, Harbour Lights café and restaurant in Lossiemouth, the Aberlour hotel, the Apiary café in Dalwhinnie, Antlers café in Newtonmore and, needless to say, the Cairngorm mountain, which has the highest venue in the UK at 3,500 feet above sea level. The Treasury continually hides behind its static, short-sighted cost figures, but a VAT cut is not lost revenue. It will be substantially offset as businesses reinvest their cash flow directly into physical assets and additional staff. The Treasury should listen to the hundreds of thousands across the country backing the campaign, listen to businesses and residents, and deliver the 10% VAT cut that will release the potential of our hospitality sector.
Josh Dean (Hertford and Stortford) (Lab)Labour
It is a pleasure to serve with you in the Chair, Dr Huq. Whether it was told to me by Ruby and Jordi, who run Bean and Gone in Hertford, or by the team at the Saracens Head, including Laura and everyone pulling pints, what I have been told by businesses is consistent: costs are rising and margins are thinner. Among a number of pressures, VAT was mentioned consistently. When our businesses look to their European counterparts and see the comparative rates of VAT, it is no wonder they ask why VAT is treated so differently, and is a heavier burden, in the UK. I welcome measures in the Budget to provide relief on business rates, which come up in every conversation I have with businesses, but I understand why some hospitality business owners are asking whether those measures go far enough to address the challenges that they face. The question is not simply whether we should consider a reduction in VAT, but how that change should be designed. A blanket reduction may sound attractive, but we must consider who it would benefit most. If a cut simply increases the margins of large, multinational chains, we will have missed an opportunity and let our businesses down. In our towns and villages—mine is a semi-rural community—our hospitality businesses are essential. They provide spaces for people to gather and jobs for young people. They act as anchors for our community. I support a targeted approach to ensure that we support SMEs in the hospitality sector to continue to provide that space for people in our community. When those businesses struggle, the consequences are felt far beyond their four walls: jobs are lost, supply chains are weakened and our towns become less vibrant. I have had the opportunity to meet representatives of many such businesses and they are both ambitious and community-minded. Members of Parliament may come and go, but those businesses have been in place for years—for decades or even longer. They deserve a tax system that recognises the value that they create, that supports them to provide employment opportunities, and that helps our businesses and communities thrive.
Steve Darling (Torbay) (LD)Liberal Democrat
It is a pleasure to serve under your chairmanship, Dr Huq. I congratulate the hon. Member for Blackpool South (Chris Webb) on obtaining this important debate. As somebody who was brought up in a guest house, this subject is in my DNA. In fact, as a three and four-year-old, I used to really enjoy sitting with the guests for their evening meals. That used to annoy my father massively, so he would drag me out from among the guests. One time, my sandal fell off into the soup and splashed everyone—I assure Members that our B&B model was not completely modelled on “Fawlty Towers”. Although that is a little bit of fun, the reality is that our hospitality industry faces a challenging world.
Vikki Slade (Mid Dorset and North Poole) (LD)Liberal Democrat
While we are talking about incredible hotels, I am privileged to have the Priory hotel in Wareham. However, it does not qualify for either the small business rate relief or the pub relief, because it is an award-winning hotel with 17 bedrooms and a Michelin key. Its rates have gone through the roof, yet it does not qualify for anything. Does my hon. Friend agree that hotels are vital to our small towns, particularly those on the south coast, and that the rest of our hospitality industry will really struggle if we do not look after them?
My hon. Friend makes a powerful point, and I will come on to some of those challenges. As has been alluded to, one significant challenge is the fact that some of our major competitors in the tourism and hospitality industry, such as Spain, France and Italy, pay only 10%. Those of us who have recently had the pleasure of going on holiday abroad will have seen the real difference in what we are paying for a meal out, and that will affect where people choose to go on holiday. Something that has affected all of us in western Europe is the massive increase in utility bills following the war in Ukraine. However, other countries in Europe will not have been impacted by the Employment Rights Act, and they will not have had the national insurance hikes impacting on their ability to employ. On viability, I am only too aware of one restaurant in Torquay that has a profit margin of only 4%, so the continued pressures on their world are significant. Hon. Members have done incredible work in highlighting challenges in their own constituencies, but one issue that has not been raised is the cost of online travel agencies, which is something that I only recently became aware of. It is almost a given that hotels and B&Bs will advertise on Booking.com, because it is how they reach out to the market and land new people in their accommodation. However, the online agency takes a minimum 15% slice out of the pie of their booking, and it will not stomach covering the costs of this VAT policy, which only enhances those costs for the overnight accommodation provider. The Government need to be alive to these issues when they look at bringing in new charges, such as the overnight visitor levy, which could be the straw that breaks the camel’s back for many of these industries. Another issue that has been raised—I must admit it is what I have heard from my hospitality industry—is that it was too complex to do the reduction in VAT for youngsters over the summer; it was a massive challenge. I want to talk about the impact of this VAT policy. Whitbread is a big player in this sector, and in April it announced 3,800 job cuts across the United Kingdom, with its Brewers Fayres and Beefeaters closing. Just in my patch of Torbay, we have had three of its offers close and dozens of people lose their jobs. Tim Rew from the Livermead House hotel shared with me that he has had to let five members of staff go, as he has had to make £180,000-worth of savings in recent months because of the continued pressure. He sees these workers as being sacrificed on the altar of bigotry against business. He has some real challenges there, as do many up and down the United Kingdom. The Liberal Democrats see the cut from 20% to 15% for a time-bound period as an opportunity to give a boost to our hospitality industry. That could be achieved through an additional levy on the banks where they are making additional unforeseen profits. We also believe that there should be limited cuts to the national insurance hikes that we have seen, which could help get young people into employment, because there have been 100,000 job losses in the hospitality industry. I would welcome the Minister’s reflections on a time-limited cut to VAT, as hon. Members have already asked for. I also ask whether the Minister has undertaken any review of the VAT reduction over the summer and its negative or positive impact, and whether there are opportunities to expand on that with similar cuts, but in a more profound way for the industry.
Gareth Davies (Grantham and Bourne) (Con)Conservative
As always, it is a great pleasure to see you in the Chair, Dr Huq. I congratulate the hon. Member for Gower (Tonia Antoniazzi) on opening the debate—as a former Welsh rugby player, she certainly knows what to do with a loose ball. I speak for the whole Chamber when I say what a pleasure it is to see the hon. Member for Blackpool South (Chris Webb) in his place. He has been a long-standing champion of the hospitality industry. He serves as chairman of the APPG, and records show that he has been quite consistent on this subject, so I pay tribute to him. He gave an excellent speech. In fact, with all the talk of cutting taxes on business and slashing VAT, which is of course a tax that we are now free to set ourselves following our departure from the European Union, as the MP for Grantham I can tell the hon. Member that Margaret Thatcher would have been proud of his speech—maybe that is an endorsement he can put on his leaflet in Blackpool. We will see. Every Member gave a fantastic speech, but it is fair to say that we do not spend enough time in this place talking about the businesses where so many people spend their evenings and weekends. As has been rightly pointed out, there are approximately 170,000 hospitality businesses in the UK, almost all of which are small businesses. They provide 2.6 million jobs, spread throughout every corner of our country. They are economically vital, providing 4% of our economic output, but like so many other businesses across the country, as has been eloquently pointed out from all sides of the Chamber, the sector is certainly suffering. My hon. Friend the Member for Berwickshire, Roxburgh and Selkirk (John Lamont) pointed out that his constituents are suffering just as others are in Wimbledon—in fact, the hon. Member for Wimbledon (Mr Kohler) speaks with great authority in this area as the owner of hospitality businesses. When he speaks on this matter, we should all listen. I have been struck by the number of examples that Members from all parties have provided. We all share the desire to help pubs, restaurants and cafés so that they thrive. I am particularly delighted that a Labour Member secured this debate to call for tax cuts on businesses, which the Conservative party of course agrees with. I hope we can agree, as a general principle, that businesses are taxed too much, and that that has a significant negative impact.
Rosie Duffield (Canterbury) (Ind)Independent
Does the hon. Gentleman agree that the Government not cutting VAT on hospitality is quite literally a false economy, because three or four businesses shutting a day generates precisely zero income for the Treasury? Does that not strike him as completely bonkers?
We have to be clear that any support or tax cut has to be fully funded and cannot drive borrowing and debt even higher, particularly now that our debt has reached more than £3 trillion. Some have suggested that a 10% cut to VAT would cost £10.5 billion. As has been mentioned today, that is not an insignificant figure. I have not heard anybody detail how we should pay for such a significant cut, but I am sure the Minister would welcome suggestions. A VAT reduction is just one way in which we could support the hospitality industry. If hon. Members are serious about cutting taxes and being low-tax champions, let me suggest a few other policies to help hospitality survive and grow, which are fully funded as part of our £71 billion plan of savings. One of the measures addresses business rates. As has been pointed out, quite rightly, business rates are a significant contributing factor to the cost base of hospitality businesses. We have set out a plan to abolish business rates for 250,000 retail, hospitality and leisure businesses, which would cost £4 billion. Under Labour, business rates have increased. Some pubs and clubs are seeing their business rates increase by as much as 95% over just a couple of years. The Government inherited 75% rates relief for the sector, and then they cut it to 40%. I urge all Members to support the Conservative plan to bring 250,000 hospitality businesses out of paying business rates altogether. Perhaps more than any other sector, hospitality relies on workers. Working behind a bar or in a kitchen is where so many young people get their first taste of work, as was set out in many examples today. The £25 billion national insurance tax hike has made hiring young people far more costly—often too costly, when combined with Labour’s increase to business rates. Under this Government, the hardest thing to get right now is a job in the hospitality industry. That is not right and does not help young people. To address that, we Conservatives have outlined how we would cut in half the national insurance paid by an employer hiring someone between the age of 21 and 24. Halving national insurance would mean more young people getting a good start in life, fewer people starting life on benefits and employment costs cut for hospitality. That would cost £2.3 billion, paid for in full by reinstating the two-child benefit cap at a saving of £3.1 billion.
Ben Lake (Ceredigion Preseli) (PC)Plaid Cymru
On the point about the cumulative impact and pressures on businesses, and underlining the urgency of the situation, I spoke to some hospitality business owners in my constituency last week who told me that I could offer them a newly refurbished town centre restaurant and they would throw the keys back at me, because it is not worth it any more.
I am extremely sorry to hear that. The hon. Member represents a beautiful part of the country. People should visit it and give all the custom they can to the businesses that he represents. The reality is that the compound effect of multiple costs and tax rises is having a real-life impact. I hope the Minister is listening. I have not yet mentioned the holiday tax, another measure forcing hospitality businesses to raise their prices for working families who just want to take a break away and have a holiday. Many Members have compared this particular tax with those of our European competitors. UKHospitality has been clear that the holiday tax will mean that holidays in England are charged double the tax of visiting Paris and 70% the tax of visiting Barcelona or Rome. Only this Government could look at a wet weekend at the British seaside and decide that the problem was that it was too cheap. We have to take action. There has been so much anti-growth taxation and regulation, I could go on and on, but I will save Government Members their blushes. This Government now tax the pint, the pub, the person pulling the pint, and the bed upstairs—alcohol duty, energy costs, labour cost hikes, the Employment Rights Act or, as some have called it, the unemployment rights Act—all piling on pressure at the same time. This Government keep ordering rounds and leaving the landlord with the tab. Prosperity begins small. It begins with the pub on the corner, the small B&B and the family-run café. Those are the employers and businesses that we should seek to support. I hope that the Minister will listen to the many concerns expressed across the Chamber. The Opposition share them, and that is why we have set out a number of costed ways in which to ease the pressure on the hospitality industry for all our constituents.
The Financial Secretary to the Treasury and Paymaster General (James Murray)Labour (Co-op)
It is a pleasure to respond to the debate with you in the Chair, Dr Huq. I thank my hon. Friend the Member for Blackpool South (Chris Webb) for securing this important debate and my hon. Friend the Member for Gower (Tonia Antoniazzi) for opening it. My hon. Friend the Member for Blackpool South has been a strong advocate for the hospitality and tourism sectors. The strength of his advocacy is recognised in all parts of the House, although I appreciate that he might not reproduce the specific terms of endorsement offered by the Opposition Front Bencher, the hon. Member for Grantham and Bourne (Gareth Davies). My hon. Friend’s work—in his constituency championing Blackpool, and in his role as chair of the all-party parliamentary group for hospitality and tourism—is widely recognised in the House and he deserves that recognition. All Members who contributed spoke passionately about their support for hospitality and the importance of such venues in all our constituencies. We all feel close to and supportive of the pubs, restaurants, cafés and other hospitality venues that give our areas their distinctive character and, of course, provide jobs. Many of us have worked in hospitality at different times in our lives. My hon. Friend the Member for Stroud (Dr Opher) said that many people have their first jobs in hospitality. Actually, my second job was in hospitality—my first was in retail—but I am glad to be part of the club, I hope, for where we started out. Learning the important skills in the workplace, earning money, going to work, developing social skills and contributing to the local economy are all so important for young people and, indeed, people of all ages. Our hospitality venues provide employment opportunities. They support our high streets and town centres with their vitality. They are integral to tourism and the visitor economy. Most importantly, they provide spaces where people come together. The shadow Minister said that those are the places where we all spend our spare time. I think that the role they play in all our lives, irrespective of our political differences on how we support them, is something we can agree on firmly.
I am excited that Wimborne in my constituency has today been named as a finalist in the Let’s Celebrate Towns competition. What makes it such a special town, however, is the places within it, whether the cafés, the restaurants, the museums or the theatre—all those things. My big concern is that, while I welcome the shift on the small business rate relief that was announced at the Budget, it does not help places in the south, where most of our businesses have business rates of £20,000, £25,000 or £30,000, whereas hospitality relief on VAT would benefit every business, whether in Wimborne or Wimbledon, in a fair and transparent way. Will the Minister go back to the Treasury and think about that again? That is a consistent message from across the sector.
The increase in the small business rates relief threshold takes about 70,000 businesses in retail, hospitality and leisure out of business rates altogether and it is just one part of the support for the RHL sector. Alongside that, the 20% cut to business rates for pubs, I am sure will benefit some pubs—
indicated dissent .
The hon. Lady is shaking her head, implying that no pubs in her constituency benefit from that. I will happily check and get back to her to confirm that the 20% cut does apply in her constituency. Also, more widely, we are having a real-terms freeze for all business rates for retail, hospitality and leisure. I think it is clear that retail, hospitality and leisure properties of all sizes benefit from a real-terms freeze, a cut or being taken out altogether. Businesses in the sector have had to contend with a number of challenges in recent years, including higher operating costs. Members have spoken about the impact that that has had. The Government take those concerns seriously. We continue to engage with the sector about what support we can give. A number of Members have made the case for reducing the current rate of VAT to 10%, and we have considered that case carefully. Let me be clear that we recognise that reducing the rate of VAT would provide a benefit to affected hospitality businesses. Businesses would make their own decisions about how to use that benefit: whether to strengthen their finances, support employment and investment, or reduce prices for customers. As the Minister responsible for the tax system, I have to consider the significant fiscal implications that such a change would have.
Monica Harding (Esher and Walton) (LD)Liberal Democrat
The Minister talks about reducing prices for customers, yet a Michelin-starred restaurant in my constituency, Starling, cannot pass those costs on to customers because they cannot pay it, and it cannot keep up with the rising costs. The Good Earth, which I think many people will be familiar with, have seven sites throughout London and the south-east; they have lost the opportunity to expand, they are reviewing locations and looking at their employment practices. That is without mentioning the pubs that are struggling to survive, which is completely heartbreaking. Does the Minister agree that not enough is being done to save these restaurants that are so much part of our high streets?
I am sorry to hear from the hon. Member about the challenges that the business in her constituency is facing. Let me be clear on the point I made so that there is no misunderstanding: if there were a reduction in the rate of VAT, it would be for businesses to decide how to use that benefit. Were the rate of VAT to be cut, how that was used—whether to strengthen finances, support employment or be passed on to customers—would be a decision for businesses to take.
Will the Minister give way?
Given we have a 4.30 pm cut-off, I had better make some progress. As the Minister responsible for the tax system, I have to consider the wider fiscal implications. VAT is one of the UK’s largest sources of tax revenue, helping to fund public services that households and businesses rely on. That means that any proposed VAT relief must be carefully considered against its affordability and whether it represents value for money for the taxpayer. His Majesty’s Revenue and Customs estimates that reducing VAT on accommodation and food and beverage services from the standard rate of 20% to 10% would cost around £11 billion a year, which is of course a significant amount of revenue. VAT is UK wide but even a similar such cut in Northern Ireland only would cost £300 million, as my hon. Friend the Member for Gower said. A more limited reduction would remain expensive: it is estimated that a reduction to 15% would cost around £5 billion a year and a 12.5% rate would cost around £8 billion a year.
Does the Minister understand the difference between McDonald’s and Mackenzie’s little café on the street corner? That is the point. Do those figures include large chains as well as small hospitality businesses?
The VAT cut would apply to the headline rate of VAT for hospitality across businesses of all sizes as proposed, but targeted support is available in England through the business rates system by cutting the business rates for small retail, hospitality and leisure businesses. There is a wider question that other Members have raised about the wider effects that a cut would have. I want to address that directly to explain that the Treasury has considered, were there to be a cut in the rate of VAT for hospitality more broadly, what impact that would have, because the Treasury’s costing already takes account of expected behavioural effects, including the impacts on demand and supply and the resulting impact on VAT receipts. There may also be wider economic benefits, but the evidence from the independent Office for Budget Responsibility is that these effects typically offset only part of the direct cost of a tax reduction, rather than allowing the tax cuts to pay for themselves. Of course, we need to consider how any tax reduction would be paid for, as indeed the shadow Minister, the hon. Member for Grantham and Bourne, recognised, because lower VAT revenues ultimately mean higher taxes elsewhere, lower public spending or additional borrowing, all of which have economic impacts of their own. The decision not to introduce a permanent VAT reduction does not mean that the Government are standing aside from challenges facing hospitality. As many hon. Members have mentioned, in the Budget two weeks ago my right hon. Friend the Chancellor of the Exchequer deliberately prioritised support for retail, hospitality and leisure properties on our high streets. I note that the shadow Minister mentioned a relief that was in existence towards the end of his time in office; he neglected to mention that that support would have ended entirely in April 2025 and it was only thanks to this Government that anything continued. In this Budget, we have said that from April 2027 every retail, hospitality and leisure property in England will see its business rates frozen in real terms, reduced, or cut to zero. We have announced a two-year, real-terms freeze for all retail, hospitality and leisure properties, capping bill increases at inflation. We are providing an additional 20% business rates reduction for pubs and all but the largest live music venues. Increasing the small business rates relief thresholds means that about 70,000 more retail, hospitality and leisure businesses will pay no business rates at all. When the measures are taken together, half of all retail, hospitality and leisure businesses will pay no business rates from April 2027. That is significant targeted support for businesses that are at the heart of our high streets and communities. Dr Huq, I am conscious that I need to leave time for the—
Actually, we are suspending that, given the debate was opened by another Member.
Thank you. I will continue, then. As hon. Members have mentioned, many people take their first step into the labour market through hospitality, and the sector provides flexible employment and apprenticeship opportunities across the country. That is why the Government have more than doubled the employment allowance, taking it from £5,000 to £10,500. That particularly benefits small businesses, taking many of them out of liability for employer national insurance altogether.
Given that we provide some carve-outs for retail, hospitality and leisure businesses on business rates, will there be scope in future for expanding employment allowance for those businesses to allow them to take on more people before they incur national insurance contributions?
The Chancellor takes decisions on fiscal policy at fiscal events, as my hon. Friend will know, but the employment allowance increase applies broadly across different sectors and parts of the economy, and sits alongside other reliefs in the tax system. I think that this will be of interest to him, given that he asked specifically about helping young people into work. The Government are protecting employer national insurance relief for all employees under the age of 21 and apprentices up to the age of 25. More recently, we have secured a commitment from the hospitality sector to create more than 100,000 opportunities for young people who are not in education, employment or training. That response from industry sits alongside the Government’s work through the youth guarantee and our reforms in respect of skills and employment support. I might briefly address some other points from hon. Members. Some Members referred to the impacts of energy costs on hospitality businesses, and we recognise the impact that global events beyond our control are having on the costs of running a business in the UK. As all Members will have seen in the Budget two weeks ago, the Chancellor and the Government are taking that very seriously and starting the longer-term reforms needed to make the energy system fairer, cheaper and easier for businesses. That includes action to control new policy costs, reform energy institutions and improve access to grid connections. Some hon. Members asked about the UK’s treatment of hospitality, compared with what happens among EU countries. A number of European countries do apply reduced rates to hospitality. France and Italy apply rates of 10%, Germany applies a rate of 7% and Ireland applies a rate of 9% for most hospitality supplies. But different countries make different choices about the balance of taxation and expenditure. The UK’s standard VAT rate is close to the OECD average and, as I set out earlier in my remarks, VAT is only one element of the business environment—it sits alongside business rates, which I have set out—and should not be considered in isolation.
I appreciate all the different taxes and all the different aspects that the Minister is juggling, but given that the now First Lord of the Treasury has said as recently as this year that he supports this proposal, is it not just a matter of time?
As the hon. Gentleman will know, the Chancellor makes decisions on fiscal policy at fiscal events, including the one that we had just two weeks ago. Before I close, I would briefly like to address the question raised—
Order. Question put and agreed to . Resolved , That this House has considered the impact of VAT policy for the hospitality sector on local economies, employment and growth.
Sitting adjourned.
Source: UK Parliament Hansard API. Debate ID: 5436660.