A SCOTTISH restaurant industry leader has called for a cut in VAT to help the struggling hospitality sector compete with cheaper destinations across Europe, where taxes are lower.
Malcolm Duck, chairman of the Edinburgh Restaurateurs Association, said many businesses in the industry had not been able to put prices up when VAT rose first from 15 per cent to 17.5 and then 20 per cent after the financial crisis, instead taking a hit to already stretched margins.
By contrast, restaurants in France and Germany pay just 7 per cent, their Irish counterparts pay 9 per cent, and in Italy and Spain the rate is 10 per cent.
“Other European countries have cut VAT, and the UK is now the highest rated for hospitality,” said Duck. “A VAT cut would help the industry significantly. It would lead to more employment and ensure businesses which are marginal but doing nothing wrong could survive and prosper.”
Duck, who owns the hotel and restaurant Ducks at Kilspindie near the capital, was speaking after Edinburgh slumped dramatically in a visitor satisfaction poll, dropping out of the top ten UK destinations in the TripAdvisor Travellers’ Choice Awards 2013 after coming second in the previous two years. He said the capital had benefited from the emergence of a number of Michelin-starred restaurants in recent years, which put it on the map as a food destination. But he said established eateries were being challenged by a trend for “pop-up” restaurants in people’s houses and that in-house catering companies were increasingly cornering the corporate entertainment market.
Luxury meals sold to eat at home, which don’t attract VAT, were proving an increasingly popular option with cash-strapped foodies, he added.
Duck said the UK government policy of cutting corporation tax, recently echoed by Alex Salmond should he gain control of tax in an independent or more devolved Scotland, were of little use to most restaurateurs, who are often sole traders with a passion for food. They are willing to exist on relatively small profits but are struggling to meet the bill for wages and other growing costs. A VAT bill that cannot be paid is often what finishes off an ailing hospitality business.
“You are paying tax on profit with corporation tax,” he said. “VAT is on turnover and is taking money straight out of struggling businesses.
“If I was to get that VAT cut it wouldn’t go into my back pocket, or necessarily lead to a lowering in prices. But it would mean being able to employ a couple more staff, being able to give them a bonus and being able to reinvest in equipment.”
The British Hospitality Association has been campaingning for a reduction in VAT to 5 per cent in the industry. It says the move would cost the Treasury nothing as it would lead to the creation of 80,000 jobs, many for the young and unemployed, generating a surplus of £2.6 billion for the government over ten years.