Consumers face steep price hikes as VAT goes up

Consumers will see double-digit price increases as VAT rises from 12.5% to 20% today, with cost inflation forecast to run at 18%, according to UKHospitality.

Operators are raising prices in their struggle to survive as costs soar and consumer confidence plummets. Recent surveys show the industry facing a 95% hike in energy bills, 19% in labour costs, along with 17% and 14% in food and drink prices, respectively.

UKHospitality CEO Kate Nicholls said: “If the sector is to have any hope of playing its full role in fuelling the UK’s recovery then we need support. We will continue to work closely with government to achieve the best possible trading conditions for the industry, keep pushing for reform of fundamentally unfair and crippling business rates, play our role in solving our workforce crisis and persist in making a case for the clear benefits a permanently lower rate of VAT will have. A move which has support not just from UK consumers but a significant number of MPs as well.”

The Chancellor’s Spring Statement last week – and his refusal to extend the reduction in VAT – is thought to have increased pressures on the sector. Keeping VAT at 12.5% would have supported operators as costs continue to rise even as they fight to recover from the impact of the pandemic, according to UKHospitality.

UKHospitality also said further straining an already fragile sector and one of the country’s major employers will impact wider economic recovery as the cost-of-living crisis worsens.

Operators echoed these sentiments. Charlie Gilkes, founder and director of bar, restaurant, and club operator The Inception Group, said: “The Government could have helped ease the pain and aided the recovery by keeping VAT at 12.5% for longer but now the sector is also faced with this returning to 20%. Inevitably this going to be incredibly tough to bear and will massively exacerbate inflation.”

Neil Manhas, Managing Director and Chief Financial Officer at Pizza Hut UK and Ireland, said: “As we look ahead, we’ll continue to work with industry bodies to find new solutions that suit our teams, our customers and our business. In the meantime, we urge the government to reconsider its decision not to extend the VAT aid.”

Nisha Katona, a member of the Hospitality Sector Council and founder of Mowgli Street Food, said: “We’d factored in this change and had little expectation that [VAT] would remain at the lower rate. We continue to trade well across our estate following the lifting of all Covid restrictions. We keep a very close watch on prices, extremely conscious of the pressures facing customers.”

Chop’d MD Eddie Holmes added that price increases for consumers were inevitable: “We’ve had to put the prices up due to a total lack of control over the economy…they need to think long-term. They need to think about the VAT rate. This is the country’s biggest employer and they are destroying it.”

Paul Campbell, founder and owner of sector investor Hill Capital Partners LLP, spoke out in support of operators: “Hospitality businesses are fighting an unprecedented wave of cost increases and doing all they can to keep prices down for their customers. But the removal of VAT relief makes this impossible and will lead to more inflation and menu pricing will inevitably rise.”