It’s time to boost our hospitality sector by removing some businesses from VAT, while cutting the rate to 12.5% for others

The impacts of the COVID-19 pandemic, coupled with the energy crisis and a labour market grappling with record vacancy levels, have stifled growth and posed significant threats to the sustainability of our hospitality businesses. As the sector continues to recover from these setbacks, my debate on ‘fiscal support for hospitality and tourism in coastal areas’ was a chance to highlight the support the sector needs and deserves before the Spring Budget.

Hospitality businesses extend beyond pubs, hotels, and restaurants and includes holiday parks, music venues, and more. The success of our hospitality sector is vital for economic prosperity and plays a crucial role in shaping the very essence of our community. In North Devon alone, we are home to nearly 2,500 hospitality venues, employing over 8,000 individuals and contributing over £400 million to our local economy, so it is crucial that any changes made to the sector serves the interests of the community.

I focused on ‘coastal areas’ because some of the challenges facing the hospitality sector there are not always obvious, with severe deprivation hidden behind our phenomenal hospitality businesses in remote coastal areas. In coastal communities, businesses are often small in scale, seasonal, and working to tight margins. When first elected, I thought it was just the seasonality, however, when I saw businesses close mid August, it became clear that there was something more at play.

The Financial Secretary, Nigel Huddleston MP, came to Ilfracombe in his previous role as Tourism Minister in 2021 to hear these concerns directly from business owners. There was a unanimous voice of Ilfracombe’s tourism sector to raise the £85,000 VAT threshold, which currently sees much of Ilfracombe like so many coastal communities, close its doors when the businesses reach the threshold. I am grateful that the Minister recognises the unique challenges for hospitality businesses in coastal areas. But our Conservative Government is focused on growth, so why do we have a threshold creating a cliff edge that does the exact opposite for the hospitality sector?

In the debate, I asked for a rise in the VAT threshold and a reduction in the VAT rate for the hospitality and tourism sector to 12.5%. VAT in the hospitality sector is significantly higher than elsewhere in Europe placing us at a competitive disadvantage. Last year, we lost 3,000 hospitality venues in the UK, and I am concerned that if the Government does not take further action we may lose even more this year. I know a VAT cut is a big but any reduction either permanently or temporarily would be a lifeline for our hospitality venues.

Hospitality is a 24/7 business, and in remote coastal areas with low unemployment, many staff are much younger and the increase in, and drop in age for the National Living Wage from April is going to hit businesses hard. I asked that the Treasury reform the rate of employer National Insurance Contributions to 10% and consider increasing the threshold to share the burden of this cost between business and government.

The potential of the hospitality sector to contribute to economic growth cannot be overstated. UKHospitality has done impressive work on this area and the economic evidence submitted to the Treasury outlines the conditions required for growth, estimating the creation of 500,000 new jobs by 2029 and an annual growth rate of up to 6%. By supporting this sector, we not only ensure the prosperity of businesses but also contribute to increased tax revenues that fund essential public services.

I would like to thank business owners in North Devon who shared their cases with me so I could present their full concerns to the Treasury. I also raised their concerns regarding a cap on the increase in the ‘large property’ business rates multiplier at 3% in England, aligning with the expected inflation rate in April and Alcohol Duty.

I applaud the Government’s commitment to creating a higher wage economy and everything we have done so far to support the hospitality and tourism industry. All eyes are peeled on what may or may not happen in the Spring Budget but I am reassured that the hospitality sector’s voice has been heard, and I hope that the Treasury will act to secure the future of more of our much loved hospitality sector.