Wbg warns cut to hospitality VAT rate might not be silver bullet many people think it will be
Leading independent specialist full-service accountancy firm Wbg has warned that, although a wider hospitality VAT-rate cut may be widely supported, detailed analysis by Dan Neidle of Tax Policy Associates (TPA), suggests that a cut to the hospitality VAT rate might not be the silver bullet that many people think it will be.
The Scottish Licensed Trade Association has thrown its support behind the push for a 10% hospitality VAT rate that has been taken up by the VAT’s The Problem campaign, fronted by chef Tom Kerridge and trade bodies such as UKHospitality.
Keith Miller, Wbg’s head of VAT, said: “TPA argues that contrary to often cited anecdotal evidence, recent experiences in European countries suggest that ‘targeted’ VAT-rate cuts do not deliver the results that might be expected, with VAT savings instead delivering enhanced profits to larger chains rather than those businesses most in need, and little evidence of VAT savings being passed onto consumers.”
“The analysis appears to support this argument, suggesting that if a 10% VAT rate is introduced, 45% of hospitality businesses will see no benefit at all, with big business being the main beneficiaries (McDonald’s VAT savings are estimated to be £400m and Wetherspoons £193m).”
The report also suggests that in addition to primarily benefitting those least in need of support, the level of VAT saving generated across the hospitality sector will be three times the value of the ‘cost shock’ suffered through increases in employer NICs, minimum wage and business rates.
“In terms of being a catalyst for growth, TPA concludes that the ‘bang for the buck’ for this proposal (i.e. the long-run GDP benefit per pound of tax-cut cost) is one of the lowest of any potential tax cut it has analysed,” said Miller, “their analysis further supporting their opinion that there are much better ways to support business than to tinker with VAT rates.
“Food for thought.”