Hospitality leaders have warned that “thousands of jobs could be lost” after the Chancellor “missed an opportunity” to halt VAT increases next month.
It came as bosses in the sector and retail industry criticised Rishi Sunak for a lack of business rates support for firms being hit heavily by soaring costs.
Kate Nicholls, chief executive of trade group UKHospitality, said the decision to push forward with plans to increase VAT on food, soft drinks and event tickets from 12.5% to 20% next month “might prove fatal” for some firms.
Already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants.
“This is a real setback for thousands of UK hospitality businesses still suffering the devastating effects of Covid, and facing a tidal wave of rising costs,” the industry boss added.
“Locking in VAT at 12.5% would have given hospitality businesses a major boost, and helped the sector in its ambition to lead the UK back to post-Covid prosperity.
“As it is, thousands of jobs could be lost, the UK will remain uncompetitive versus international rivals, and already hard-pressed consumers in the midst of a cost-of-living crisis will see price rises in their favourite pubs, bars and restaurants, further fuelling inflation.”
Emma McClarkin, chief executive of the British Beer and Pub Association, was also critical of the lack of support for the sector.
She said: “We are very disappointed that the Chancellor decided not to extend the 12.5% rate of VAT for hospitality.
“The sector remains on a knife-edge as it emerges from the pandemic and the impact of the recent energy crisis and invasion of Ukraine has ensured the turbulent times will continue for pubs and brewers just as we had hoped to build the road to recovery.
“The coming months could be some of the hardest yet for our pubs and brewers.”
Wetherspoon chairman Tim Martin said: “We are naturally disappointed that the Chancellor has not taken the opportunity to reduce VAT in respect of food in pubs and restaurants, to the same level as supermarkets.
“It does not make economic sense for the hospitality industry to be taxed at a higher rate.”
Hospitality, retail and supplier businesses have been impacted by a surge in inflation in recent months and expect cost pressures to be exacerbated further by the increase in the National Living Wage next month.
Many businesses will also be impacted by rising business rates next month.
At the start of the pandemic, the Treasury introduced a business rates holiday for retail, hospitality and leisure firms which has been wound back as pandemic restrictions eased.
Current relief measures, which have already been scaled back significantly, are due to finish at the end of this month.
Speaking in Parliament, Mr Sunak reaffirmed his plans to introduce a new relief for eligible retail, hospitality and leisure properties with smaller 50% relief on rates bills but capped at £110,000 for larger businesses.
But real estate adviser Altus Group have said hospitality, retail and leisure firms will see a £3.1 billion increase for the new financial year as the new £1.7 billion relief package is offset by increases for other firms.
Robert Hayton, UK president at Altus, said high street firms were facing a “dangerous cost of doing business crisis which could derail the recovery from the pandemic” citing “lower rates relief, increased employment costs, surging gas and electricity bills as well as other increased operational costs.”
Scott Parson, UK chief operating officer at shopping centre giant Unibail-Rodamco-Westfield, added: “With consumers facing rising interest rates, fuel and food prices, retailers are already expecting an incredibly challenging few months, which will only get more difficult as the Chancellor once again fails to reform the outdated business rates system.
“While the temporary changes announced are welcomed, permanently reducing rates is the simplest and most effective way to kickstart the recovery of the retail industry and reinvigorate our towns and cities by making them attractive for businesses to invest in.”
