Hospitality industry representatives have welcomed reports the government is considering cutting VAT in a bid to ease the cost-of-living crisis.
Steve Barclay, the prime minister's chief of staff, has suggested temporarily cutting the headline rate of VAT from 20% to 17.5%, according to The Times.
Emma McClarkin, chief executive of the British Beer and Pub Association (BBPA), said a tax reduction could help relieve the "immense pressures" of rising costs facing the industry.
The government slashed VAT to 5% for hard-hit pubs and restaurants at the height of the pandemic in 2020. This went up to 12.5% from October 2021 and reverted to pre-pandemic levels of 20% from April.
MCClarkin added: "The VAT increase to 20% in April added further burden to businesses that were already struggling to make ends meet and now only one in three hospitality businesses is currently making a profit, and almost half are operating reduced hours.
"A reduction would be extremely welcome, and we hope the government will seriously consider introducing it sooner rather than later."
UKHospitality chief executive Kate Nicholls tweeted: "Steve Barclay is right - a temporary VAT cut has been used successfully in the past to reduce [the] tax bill for millions and ease cost of living squeeze as well as supporting businesses."
Hospitality leaders and trade bodies have consistently called for VAT to be kept lower than 20% to help firms trying to recover from the impact of long lockdowns and the soaring cost of everything from labour to energy.
The Times reports the possible cut may not go ahead as the Treasury had concerns it could potentially stoke rather than curb inflation and would cost the exchequer around £18b to implement.
Paul Johnson, the director of the Institute for Fiscal Studies think tank, told the BBC a VAT cut could "throw petrol" on the "fire" of current inflation.
A government spokesperson told The Caterer: "We understand that people are struggling with rising prices which is why we have acted to protect the 8m most vulnerable British families through at least £1,200 of direct payments this year with additional support for pensioners and those claiming disability benefits.
"Through our £37bn support package we are also saving the typical employee over £330 a year through a tax cut in July, allowing people on Universal Credit to keep £1,000 more of what they earn and cutting fuel duty by 5p saving a typical family £100."
It is understood the government will keep all taxes under review.
Image: MNStudio / Shutterstock
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