Hospitality Sector VAT: Local Economies, Employment and Growth

Seamus Logan Excerpts

Thursday 12th November 2026 Westminster Hall

[Seamus Logan (Aberdeenshire North and Moray East) (SNP)]

It is a pleasure to serve under your chairship, Dr Huq. I congratulate the hon. Member for Blackpool South (Chris Webb) on securing this debate.

I rise in support of small hospitality businesses. I hope that the Minister can discern the difference here; I am not speaking about large hotel, coffee shop or pub chains. If the Government are serious about supporting small hospitality businesses, protecting jobs and sustaining our high streets and coastal towns, they must act on VAT for those businesses. There will be real consequences if they do not: fewer jobs, less opportunity and, ultimately, weaker local economies. Yet, at the same time that these costs rise for those businesses, they are expected to compete with a VAT rate that remains stubbornly high compared with those of our European neighbours.

In February of this year, the Prime Minister, then Mayor of Greater Manchester, publicly said that he would argue for a hospitality VAT rate in line with Europe. It was so disappointing that in the first Budget under his leadership there was nothing about VAT for small hospitality businesses. This week, he said that that Budget was incredibly popular. I simply do not know what planet he is on. We have a situation where businesses are struggling to recruit, facing rising employment costs and dealing with high VAT all at the same time.

Ultimately, this is not just about balance sheets; it is about the local café that sponsors the local football team, the pub that hosts community events and the family-run restaurant that has been passed down through generations. It is about The Captain’s Table and Mrs Maitland’s café in Fraserburgh, and the Saplinbrae Hotel in Mintlaw—those are the family businesses that I am speaking about. They are places that bring people together, create jobs, support local suppliers and give our towns and villages their character. They deserve more than warm words; they deserve action. I urge the Minister to look again at VAT for small hospitality.

--- Later in debate ---

[James Murray]

I am sorry to hear from the hon. Member about the challenges that the business in her constituency is facing. Let me be clear on the point I made so that there is no misunderstanding: if there were a reduction in the rate of VAT, it would be for businesses to decide how to use that benefit. Were the rate of VAT to be cut, how that was used—whether to strengthen finances, support employment or be passed on to customers—would be a decision for businesses to take.

[Seamus Logan]

Will the Minister give way?

[James Murray]

Given we have a 4.30 pm cut-off, I had better make some progress.

As the Minister responsible for the tax system, I have to consider the wider fiscal implications. VAT is one of the UK’s largest sources of tax revenue, helping to fund public services that households and businesses rely on. That means that any proposed VAT relief must be carefully considered against its affordability and whether it represents value for money for the taxpayer. His Majesty’s Revenue and Customs estimates that reducing VAT on accommodation and food and beverage services from the standard rate of 20% to 10% would cost around £11 billion a year, which is of course a significant amount of revenue. VAT is UK wide but even a similar such cut in Northern Ireland only would cost £300 million, as my hon. Friend the Member for Gower said. A more limited reduction would remain expensive: it is estimated that a reduction to 15% would cost around £5 billion a year and a 12.5% rate would cost around £8 billion a year.

[Seamus Logan]

Does the Minister understand the difference between McDonald’s and Mackenzie’s little café on the street corner? That is the point. Do those figures include large chains as well as small hospitality businesses?

[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—