Hospitality Sector VAT: Local Economies, Employment and Growth

Rupa Huq Excerpts

Thursday 12th November 2026 Westminster Hall

[Dr Rupa Huq (in the Chair)]

As it is more than 10 minutes past 3 pm and the Member in charge is not here yet, I call Tonia Antoniazzi to move the motion.

[Tonia Antoniazzi (Gower) (Lab)]

I beg to move,

That this House has considered the impact of VAT policy for the hospitality sector on local economies, employment and growth.

It is an honour to serve under you chairship, Dr Huq; I am moving the motion on behalf of my hon. Friend the Member for Blackpool South (Chris Webb). Hospitality and tourism are not just industries; they are major employers, anchors of local economies and a vital part of the social fabric of communities right across the United Kingdom. Yet in my roles as Chair of the Northern Ireland Affairs Committee and chair of the all-party parliamentary beer group, we have seen that current VAT policy, combined with a range of other tax pressures, is placing hospitality businesses under significant strain and undermining their ability to compete.

Our inquiry heard from hotels, pubs, restaurants, caterers and tourism operators across Northern Ireland. We travelled to Derry/Londonderry and met businesses on the ground. Their message was consistent and clear: the current tax environment is holding back growth, limiting investment and threatening the long-term viability of businesses that are already operating on tight margins. Hospitality businesses are contending with a perfect storm of rising costs. Increased employer national insurance contributions have also hit the sector, which relies heavily on part-time and lower-paid workers. We heard evidence that it is around 8% more expensive to employ someone on the minimum wage in Derry/Londonderry than it is just a short distance away from the border in the Republic of Ireland.

Businesses also face high business rates and rising energy costs. Hospitality is an energy-intensive sector with little flexibility to move consumption away from peak trading hours. At the same time, consumer spending remains under pressure, particularly in Northern Ireland, where average wages remain lower than the UK average.

[Gregory Stafford (Farnham and Bordon) (Con)]

The hon. Lady is giving an excellent description of the problems happening in Northern Ireland, but they are happening in England, Wales and Scotland as well. I hold a regular quarterly meeting with my local publicans and hospitality businesses. They say repeatedly that the situation they face at the moment is worse than it was under covid, because at least under covid the Government stepped in to support them. The Government are now penalising them through all the things the hon. Lady just mentioned, such as the business rates increases—for one pub in my area they are going up by £32,000. That is just not sustainable, and there are the national insurance rises, too. Does she agree that although VAT is part of the picture, the Government really need to deal with all sorts of other parts of the tax system?

[Dr Rupa Huq (in the Chair)]

Order. The hon. Member’s remarks are a bit long for an intervention.

[Tonia Antoniazzi]

The hon. Member may question why, as a Welsh MP, I am not calling for a UK-wide reduction. I am not calling for that per se, but I do want to lay out why Northern Ireland is a special case and why it could be useful for the Government to do a pilot.

The more striking issue raised during our inquiry was the impact of VAT policy on competitiveness. Hospitality businesses in Northern Ireland operate in a unique environment, competing not only with businesses in other parts of the UK, but directly with establishments in the Republic of Ireland, and therefore Europe. The Republic of Ireland’s hospitality services benefit from significantly lower VAT rates, including a 9% rate on food and catering services and a 13.5% rate on accommodation, compared with the UK’s standard rate of 20%. That disparity has real-world consequences.

We were told that tour operators organising itineraries across the island of Ireland are increasingly choosing accommodation south of the border because of lower costs. Conference organisers, wedding planners and major event operators are making similar decisions. In many cases, Northern Irish venues simply cannot compete, despite offering excellent facilities and service. The result is real: lost business, lost investment and lost opportunities for growth. I wish to be clear: witnesses did not argue that VAT is the only challenge facing the sector, but many viewed it as the most straightforward and effective lever available to Government.

A reduction in VAT would provide businesses with breathing space. It would improve cash flow, strengthen margins, support investment in premises and staff, help to absorb rising operating costs and enhance competitiveness in an all-island market. Importantly, businesses told us that the primary benefit would not necessarily be cheaper prices for consumers. Rather, it would allow businesses to remain viable, invest for the future and create the conditions for sustainable growth. That is why the Committee has called for the Government to introduce a four-year pilot scheme in Northern Ireland, reducing VAT to 10% on food, excluding alcohol, and on accommodation.

A pilot scheme would provide an opportunity to gather robust evidence. It would give businesses sufficient time to adapt, secure new contracts, influence customer behaviour and demonstrate whether a lower VAT rate can stimulate economic activity, increase employment and ultimately generate broader returns for the public finances. Such an approach would not only benefit Northern Ireland; it could also provide valuable lessons for hospitality policy across the UK.

We have also called on His Majesty’s Treasury to engage with the Irish Government and Tourism Ireland to examine the impact of Ireland’s recent VAT reductions and previous temporary cuts. If there is evidence that lower VAT rates in Ireland have supported growth, jobs and tax revenues, we should be willing to learn from Ireland’s experience.

Hospitality businesses do not want special treatment. They want a fair opportunity to compete, and a tax system that recognises the unique pressures they face and the immense contribution they make to local economies. If we are serious about supporting jobs, encouraging investment and strengthening our tourism offer, we must recognise the role that VAT policy plays in shaping competitiveness. The case for a targeted VAT pilot in Northern Ireland is strong, the evidence is compelling and the potential rewards for growth and prosperity are significant. I urge the Government to listen to the sector and act accordingly.

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[Mims Davies (East Grinstead and Uckfield) (Con)]

The hon. Gentleman mentioned the wider economic impact. East Grinstead has the headquarters of the Caravan and Motorhome Club, which provides access to more than 2,200 campsites, glamping and all sorts of wonderful places. It will be affected by the overnight visitor levy, which means that a meal out and other things families want to do on those holidays just will not happen. Does the hon. Gentleman agree that that is what this means for families?

[Dr Rupa Huq (in the Chair)]

Order. We have half an hour to get everyone in. I hope Chris Webb will conclude so that other people can get in.

[Chris Webb]

I understand the point the hon. Member for East Grinstead and Uckfield (Mims Davies) makes, and I have heard it from caravan businesses and parks in my constituency. That has to be part of the discussions after the Second Reading of the Visitor Levy (England) Bill.

[Chris Webb]

I give way to my hon. Friend.

[Dr Rupa Huq (in the Chair)]

Order. No, you are not taking any more interventions. There is a hard stop at 4 pm, and we need to hear from the Front Benchers.

[Chris Webb]

The Great British summer savings scheme, which temporarily reduced VAT on attractions this summer, is a good case study of the potential impact of policy changes on local economies, employment and tourism. The scheme recognised that targeted VAT reductions can support both consumers and businesses, as can free bus travel.

Take the award-winning Blackpool pleasure beach in my constituency. During the pandemic, when VAT was cut to 5%, the park’s turnover rose, and it recorded an exceptional profit of £10.5 million—the biggest in years. As a consequence, it paid £1.9 million more in tax to His Majesty’s Revenue and Customs. Over the summer, businesses in my constituency were saved because of the summer savings scheme.

What assessments has the Minister’s Department made of the impact of rising costs on hospitality businesses, business investment, employment and opportunities for young people? What assessment has been made of the potential impact on local economic growth of reducing hospitality VAT? I look forward to hearing more from colleagues and to the Minister’s response.

[Dr Rupa Huq (in the Chair)]

I am setting a hard time limit of three minutes for everyone from now on.

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[Alex McIntyre]

My hon. Friend makes an eloquent point raising important research from her constituency, and I am sure that the Minister has heard her intervention. I welcome the fact that the Government have made a start on business rates. I have continuously raised that issue with Ministers on behalf of Gloucester business owners, and it is good to see action.

I know that the Minister shares my commitment to our hospitality industry, so it would be helpful if he set out how the Government intend to go further to support hospitality businesses in Gloucester. For future generations, I know how important a first job in hospitality can be. We have 2,500 young people not in employment, education or training in Gloucester; that is why I am hosting the Gloucestershire futures summit later this month at Kingsholm rugby stadium. Can the Minister set out how the Government will make it easier for hospitality businesses to hire young people and offer the part-time weekend jobs that are the springboard for many young people in my city? Our pubs, cafés and restaurants are where Gloucester comes together. I owe my family to the jobs that they create. Let us make sure that they are still there for the next generation.

[Dr Rupa Huq (in the Chair)]

There are still nine people left and a hard stop at 4 o’clock, so there will be an immediate time limit of two minutes, although perhaps not everyone will get in.

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[James Murray]

The VAT cut would apply to the headline rate of VAT for hospitality across businesses of all sizes as proposed, but targeted support is available in England through the business rates system by cutting the business rates for small retail, hospitality and leisure businesses.

There is a wider question that other Members have raised about the wider effects that a cut would have. I want to address that directly to explain that the Treasury has considered, were there to be a cut in the rate of VAT for hospitality more broadly, what impact that would have, because the Treasury’s costing already takes account of expected behavioural effects, including the impacts on demand and supply and the resulting impact on VAT receipts.

There may also be wider economic benefits, but the evidence from the independent Office for Budget Responsibility is that these effects typically offset only part of the direct cost of a tax reduction, rather than allowing the tax cuts to pay for themselves. Of course, we need to consider how any tax reduction would be paid for, as indeed the shadow Minister, the hon. Member for Grantham and Bourne, recognised, because lower VAT revenues ultimately mean higher taxes elsewhere, lower public spending or additional borrowing, all of which have economic impacts of their own.

The decision not to introduce a permanent VAT reduction does not mean that the Government are standing aside from challenges facing hospitality. As many hon. Members have mentioned, in the Budget two weeks ago my right hon. Friend the Chancellor of the Exchequer deliberately prioritised support for retail, hospitality and leisure properties on our high streets. I note that the shadow Minister mentioned a relief that was in existence towards the end of his time in office; he neglected to mention that that support would have ended entirely in April 2025 and it was only thanks to this Government that anything continued.

In this Budget, we have said that from April 2027 every retail, hospitality and leisure property in England will see its business rates frozen in real terms, reduced, or cut to zero. We have announced a two-year, real-terms freeze for all retail, hospitality and leisure properties, capping bill increases at inflation. We are providing an additional 20% business rates reduction for pubs and all but the largest live music venues. Increasing the small business rates relief thresholds means that about 70,000 more retail, hospitality and leisure businesses will pay no business rates at all. When the measures are taken together, half of all retail, hospitality and leisure businesses will pay no business rates from April 2027. That is significant targeted support for businesses that are at the heart of our high streets and communities.

Dr Huq, I am conscious that I need to leave time for the—

[Dr Rupa Huq (in the Chair)]

Actually, we are suspending that, given the debate was opened by another Member.

[James Murray]

Thank you. I will continue, then. As hon. Members have mentioned, many people take their first step into the labour market through hospitality, and the sector provides flexible employment and apprenticeship opportunities across the country. That is why the Government have more than doubled the employment allowance, taking it from £5,000 to £10,500. That particularly benefits small businesses, taking many of them out of liability for employer national insurance altogether.

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[James Murray]

As the hon. Gentleman will know, the Chancellor makes decisions on fiscal policy at fiscal events, including the one that we had just two weeks ago.

Before I close, I would briefly like to address the question raised—

[Dr Rupa Huq (in the Chair)]

Order.

Question put and agreed to.

Resolved,

That this House has considered the impact of VAT policy for the hospitality sector on local economies, employment and growth.