The hard-pressed hospitality industry is facing some difficult choices after the temporary cut in VAT to 12.5 per cent reverted to the full 20 per cent.
It will result in double-digit price increases for consumers as operators struggle to survive, leading industry body UKHospitality says.
In addition, many hospitality businesses in England impacted by the Omicron variant are believed to have received less than half of the £635 million support package promised by Government.
Analysis of Government data by real estate adviser Altus Group found that just £305 million of the £635 million distributed to 309 English councils had been paid out less than three weeks before the final cut-off for applications on 18 March.
Hospitality ‘faces cliff edge’
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 per cent.
Charlie Gilkes, founder and director of bar, restaurant and club operator The Inception Group, said: “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.
“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 per cent for longer but now the sector is also faced with this returning to 20 per cent. Inevitably this going to be incredibly tough to bear and will massively exacerbate inflation.”
What was the Government funding?
Under the Omicron Hospitality and Leisure Grant Scheme, councils received funding to be allocated in one-off grants worth up to £6,000 to be paid to hospitality, leisure and accommodation businesses in England based on the rateable value of their properties.
This was in response to a massive decline in footfall and increased cancellations over the Christmas and New Year period last year.
Which councils paid out the grants?
Altus Group said its analysis revealed that 29 councils had failed to distribute a single penny, while a further 89 councils had distributed less than half of their total allocation in grant funding to those firms hardest hit.
But seven councils, including the London borough of Barnet, Bradford, Leicester, Warrington, Bury, Burnley and Barnsley, had actually paid out more in grants than they had received from the Government ahead of the scheme closing for applications.
Responding to the VAT decision, UKHospitality CEO Kate Nicholls said: “The now inevitable price rises for consumers will dampen demand and many hospitality businesses – one in three having less than a month of cash reserves and most are carrying heavy debt burdens – will fail as a result. This can only cause the UK’s wider economic recovery to falter.”
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