The Treasury has refused to consider a 5% VAT cut for the hospitality industry, claiming the “fiscal challenge” is too great, writes Michelle Perrett. In a letter from the Government department, seen by M&C Report's sister publication Publican’s Morning Advertiser, the minister in charge of VAT David Gauke claimed there was no “compelling evidence” for such a cut. The insight into the Government’s thinking was revealed after bosses of five major pubcos last week declared support for the Publican’s Morning Advertiser's Thrive on Five campaign to get VAT reduced to 5% across the hospitality industry. The Federation of Small Businesses and a range of trade associations have also backed the call. French lobbyist Jacques Borel, the man behind the 5.5% VAT rate for the hospitality sector in France, said a VAT cut in the UK could see the creation of up to 320,000 jobs. Charlie Elphicke, MP for Dover & Deal, wrote to Chancellor George Osborne after licensee Peter Killin of the Smugglers Inn, Dover, Kent, raised the issue of a VAT cut to help the hospitality trade. The letter of response said: “We have no compelling evidence, nor have we been presented with such evidence that leads us to believe there is a strong case for what the constituent is suggesting.” Gauke also added that while EU VAT agreements allow a number of reduced rates of not less than 5% on a prescribed list of goods and services “separate supplies of alcohol generally do not form part of this list". "It is therefore not possible to introduce a reduced rate for alcohol.” On the suggestion of a VAT cut on restaurant services, which includes food and drink such as alcohol as part of a meal, the Treasury minister said that the the economic situation of the country remains a priority: “Any suggestions that are made considered in the context of the nation’s finances,” he added. Killin dismissed the minister's response, claiming the evidence is strong on how well a VAT cut has worked in other European countries. He added: “In Europe they have insitigated a 5% VAT rate which has worked well.” The Campaign for Real Ale's head of policy and public affairs Jonathan Mail added: “The Treasury confirms that it would be legal under EU rules to reduce VAT on pub meals and accompanying alcoholic drinks. "They, however, also imply that EU rules do not allow reduced VAT on the sale of a drinks separate from a meal. "This is an interesting interpretation of EU rules which needs further consideration. “A VAT reduction on pub meals and drinks would be a valuable lifeline for struggling community pubs. It would also increase tourism, create jobs and enable more people to enjoy their local pubs as a result of lower prices. This boost in trade for pubs would generate additional tax revenue for Government potentially fully offsetting the cost of a lower VAT rate."