Government plans to raise VAT to 20% as part of what Chancellor George Osborne billed the 'unavoidable Budget' received a mixed reaction from the hospitality industry this week.
Osborne made the widely-predicted announcement, which will see the tax go up on 4 January 2011, as part of a packet of harsh fiscal measures designed to reduce the UK's budget deficit.
Stephen Broome, hospitality director at consultancy PricewaterhouseCoopers said the tax hike would have "little or no impact" on demand. "Consumers are already rationing visits to restaurants and pubs and as this is a small-ticket industry the impact is less noticeable when picking up the bill than, say, buying a car," he said.
And the British Beer and Pub Association (BBPA) said the VAT rise was the "price to pay for tackling the deficit". "This tax increase is not welcome, but it is understandable and applies to everybody. We hope this will be short-term pain for long-term gain," BBPA chief executive Brigid Simmonds said.
However individual operators were less forgiving. Kirk Kinsell, president of Europe, Middle East and Africa at InterContinental Hotel Group said that, while the welcomed Osborne's attempts to balance the nation's books, the Chancellor "missed an opportunity grasped by most of our European partners to stimulate growth in the tourism sector by cutting VAT on hotel accommodation."
Meanwhile, low-cost restaurant operator Tampopo warned that 25p over every £1 that its customers spend now goes to the Inland Revenue. "I thought the conservatives were a low tax party. There is absolutely no doubt that if VAT rises there will be less opportunity for growth in our sector," David Fox of Tampopo said.
And Simon Dodd, commercial director at the Orchid Group, said his firm was "strongly against" the VAT increase. "Our recovery is fragile and the increase of 6p a pint in January 2011 could dramatically damage this," he said.
But there was a reprieve for the on-trade, as the Coalition Government opted to freeze duty on alcohol and reverse the 10% rise in duty on cider proposed by the Labour Government. However he also announced that he would report back in the autumn about potential health-related measures on alcohol.
Nick Robertson, chief executive of the British Institute of Innkeeping (BII), said: "BII is pleased to see that duty on alcohol is to stay the same, and welcomes the Chancellor's plans to help businesses grow. But we are disappointed that our members will face the burden of new VAT rates," he said.
And contract caterers were once again smacking their lips at the prospect of more outsourcing to save public sector cash. "While the headline 25% cuts in public spending by 2014 will inevitably put current public sector contracts under pressure, the necessity to transform public services will undoubtedly give more progressive companies the opportunity to strengthen their partnerships with public sector clients," Tony Cooke, government relations director, Sodexo UK and Ireland.
The Budget at a glance:
• No new increases on alcohol, tobacco and fuel duty.
• 10% duty increase on cider to be reversed.
• VAT to rise from 17.5% to 20% from 4 January 2011.
• New businesses outside London and the South East to be exempt from £5,000 of NI contributions for first 10 employees.
• Threshold at which employers will start to pay National Insurance rise by £21 per week from April 2011.
• Corporation tax - to be cut next year by 1% each year for next 4 years to take it down to 24%.
• Small Companies Corporation Tax to be cut to 20% by next year.
Three quarters of consumers back beer duty freeze or fall >>
Chancellor raises alcohol duty but lowers business rates for one year >>
By Neil Gerrard
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