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LONDON (Alliance News) - JD Wetherspoon PLC on Wednesday said it is backing a campaign by the VAT Club, calling on the UK government to cut the level of VAT on food and drink in the hospitality sector from 20% to 10%.
The VAT Club said the cut would result in 425,000 new jobs being created across the UK in the pub, restaurant, catering and visitor accommodation sectors over a three-year period and would lead to increased custom due to lower prices, improved food quality and service, and better staff training.
It added that the 10% reduction should, at a later stage, be reduced even further to 5%, creating an extra 150,000 jobs.
The VAT Club is made up of members from the UK pub, restaurant, hotel and food service sectors including London-listed JD Wetherspoon, Fuller, Smith & Turner PLC, Young & Co PLC and Punch Taverns PLC.
It is led by Jacques Borel, who has campaigned and won VAT cuts from the leisure and hospitality industries across European countries including France, Finland, Germany, Belgium, Sweden and Ireland.
"The high rates of VAT applying to pubs, restaurants, hotels and catering businesses in the UK is restraining the growth of the UK hospitality industry. Also the increase in the minimum wage will result in increased costs for businesses in the leisure and hospitality industries, and a VAT cut would offer a viable solution to this," Borel said in a statement.
"By lowering the rate of VAT in the sector, the government will reduce the unfair competition from supermarkets which benefit from the zero VAT rates that apply to the food it sells and which is used to subsidise the sale of alcoholic drinks. Our experience of VAT cuts in other EU countries shows that operators reduce their prices and customers respond to those lower prices with increased demand," he added.
Competition from supermarkets is an issue that has concerned the pub industry of late. In July, Wetherspoons Chairman Tim Martin said that there was a "huge VAT and business rates disparity" between pubs and supermarkets, which was putting "unsustainable pressure" on many pubs in the industry.
At the time, Martin added that the government's introduction of the national living wage also would hit the pub industry to a greater degree than supermarkets.
"The recent government announcement regarding the 'living wage' adds considerable uncertainty to future financial projections in the pub industry. The average price of a pint in a supermarket is less than GBP1 and we estimate staff costs to be around 10% or 10 pence. In contrast, a pint in a pub costs around GBP3 and staff costs are about 25% or 75 pence. Increased labour costs therefore affect pubs with far greater force than supermarkets," Martin said.
The national living wage, which applies to workers over the age of 25, will start at GBP7.20 an hour from April next year, rising to GBP9 an hour by 2020, and will supplement the current GBP6.50 minimum wage, which also applies to under 25s.
The VAT Club argued that a cut in VAT also would benefit the government, as while it would experience a decline in direct VAT receipts, it would gain additional revenue from higher sector turnover as well as benefiting from higher income tax, national insurance payments and corporation tax receipts, as well as savings in unemployment benefits due to the extra jobs it would create.
"A VAT cut to ten per cent will be a win-win situation for companies in the leisure and hospitality sectors, as well as for the government," Borel said.
The VAT Club's report, 'Growth and Jobs (The impact of lower VAT rates on the British pub, cafe, restaurant, catering and visitor accommodation sectors)', will be submitted to the Treasury in October.
Shares in Wetherspoons were trading down 0.9% at 751.00 pence Wednesday morning.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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