Pub and restaurant goers are set to suffer huge and ‘inevitable’ price increases as VAT returns to 20% today after being discounted to 12.5% during the pandemic. Trade body UKHospitality has said that the increases in the double digits are to be expected in the coming weeks.
“Given the unfolding cost-of-living crisis for consumers and soaring operating costs for businesses, the return to 20% VAT for the sector will prove nothing less than catastrophic,” said Kate Nichols, chief executive of UKHospitality.
“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.”
Like everyone else, the hospitality industry is now facing surging energy costs, as well as increases of 17% in food prices and 14% in drinks prices.
Speaking to the Manchester Evening News, David Fox, founder of the Tampopo restaurants, said: “The flat 20% VAT rate means Tampopo will now give over £100,000 a month to Rishi in tax receipts. At the same time energy prices have gone up by 300%, food prices by 10% and wages by 7%.
“Staff shortages and supply chain problems which have been created by Brexit and the pandemic are being exacerbated by the war in Ukraine, and that means more restaurants will close.
“Prices will have to go up, which most good operators do not like doing - especially at a time when many of its customers are feeling the pinch.”
It comes in a week where Manchester’s night time economy advisor Sacha Lord said that an average pint of beer is set to go up by between 16 and 20p.
“Our sector looks like it's back to normal with the naked eye, but behind the scenes, operators are barely breaking even,” he said. “Many operators will be forced to increase customer prices by around four to five per cent simply to stay afloat and this additional rise will be noticeable to punters.
"Landlords are trying their best in what is a financially precarious situation for many and putting prices up isn't something they will want to do. I believe most will try to keep price increases lower than the current 6.2% inflation rate to keep customers coming in, and will look to cut costs elsewhere such in their supply chains or even by reducing trading hours and cutting staff hours."
Nicholls added: “If the sector is to have any hope of playing its full role in fuelling the UK’s recovery, then we need support.
“We will continue to work closely with government to achieve the best possible trading conditions for the industry, keep pushing for reform or fundamentally unfair and crippling business rates, play our role in solving our workforce crisis and persist in making a case for the clear benefits a permanently lower rate of VAT will have.
“A move which has support not just from UK consumers but a significant number of MPs as well.”
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