9 Comments
Jan 29·edited Jan 29

It's a surprise, and a bit of a disappointment, when Vittles pushes a right-wing, anti-tax narrative, especially when it does so without any consideration of the impact VAT cuts would have on already pressured public finances.

Don't get me wrong - VAT is ultimately a regressive tax, and the vagaries of what is and isn't standard-rated are confusing and contradictory. But it's also the third-biggest source of tax income for the government - £160bn/year towards public services. If you're going to talk about cutting that income stream to any meaningful extent, you have to ask: what tax rises to make up for it? It's easy to hand-wave that away as someone else's problem, but whether it's solved by cutting spending or by pushing up other taxes, that's going to have an impact on restaurant and hospitality owners, workers and customers.

Much of this article is special pleading for the restaurant sector. But as the historic overview shows, paying VAT is just a cost of business for restaurants - the rate has been at least 15%, usually 17.5%, since the expansion of the sector in the 90s. It was only during Covid, a period which naturally hit the hospitality sector particularly hard, that it was, temporarily, lower. A business that can't pay its tax bill isn't a viable business - cutting tax rates for a sector is just a hand-out to the business owners from the public purse.

So reform VAT, yes. But unless it comes with a clear route to maintain public revenues, a VAT cut would just be subsidising business owners at the cost of the rest of us (and a reduction of the competitive advantage currently enjoyed by small vendors under the £85k threshold).

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I didn’t read it this way at all (as a lefty). He says that it will never happen with either Sunak or Starmer so alternative revenue streams seem outside of the scope to me. I read it as an intro to taxation in the restaurant business and a lot of it was news to me including how much the rates of income tax have plummeted.

Small vendors can’t claim back the vat they spend so I think larger businesses have a small advantage there btw?

For what it’s worth, I’d hope to see the personal allowance raised and vat cut with a return to higher tax at the top end and chasing down big money tax avoidance / closing loopholes. Not going to happen either but would be nice...

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Cut the rate of VAT to increase the profits of restaurants, particularly Anerican based and founded chains does not have the right optics and certainly not for a group like Vittles, that propounds a particular food philosophy, that is supported by many of its subscribers.

There are better approaches to support the food culture that many of the subscribers would support. Indeed, perhaps it is a campaign that Vittles should consider focusing on.

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It’s true that cutting VAT will help small restaurants and big chains. The problem is that the macroeconomic climate has chiseled away margins and that’s no restaurant’s fault, big or small. My thoughts are that labour heavy kitchens (ie the ones you might prefer in your city or local neighbourhood) are most as risk. Those with central kitchen models (a lot of chains) less so. There’s a danger in wanting to avoid another hand out to the rich that you harm the small.

It should be said that this VAT cut is an intervention and not a cure, for the underlying issues that have created the current problems.

Full disclosure, I am a hospitality pro with four places in suburban Manchester.

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This was really informative - and interesting!

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This is a really fascinating piece, thanks Max and Vittles! Like so many taxes in Britain, VAT (especially on food) is based on an insane/archaic set of principles and is badly in need of reform to be appropriate for the modern world (see also: business rates, council tax, etc). Ultimately you need a government to come in which wants to properly look at taxation in the round - otherwise you get weird, bit-piece reforms which might help some in the short-term, but certainly won't help solve the wider issues facing hospitality (and the government's lack of meaningful interest in the food / restaurant sector more broadly, which is surely at the heart of the issue?).

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It’s interesting to read how tax affects many sectors in UK. In BC, Canada, the equivalent of VST is GST which is only 5%, and parts of it can be claimed back. However, we also have a 10% liquor tax on all drinks, because our government controls the liquor distributions.

As a past restaurant owner in Vancouver, BC, the problem we faced was many folds, but I felt the root problem was housing affordability in comparison to income. In Vancouver, rental cost was more than half of the average income. And the majority couldn’t afford to purchase a home. This had two impacts, one, less spending room for the average consumer, two, less applicants for hospitality jobs because they need higher paid jobs. During Covid, the government helped by subsidizing, but as soon as that past, higher interest rate, less money in the pocket, higher property tax, many hospitality staff left the industry, everything came down at once. This was when we saw a shift in the hospitality industry from labor heavy bistros and full service restaurants to quick eats and chain concepts.

As much as I hated what happened, I believed that the less intervention from the government the better it will be, eventually it will balance out. Once enough restaurants shut down, supply and demand will eventually balance themselves.

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There's no doubt that restaurants are struggling. I'm constantly worried local places I love might have to shut up shop. But I'd be interested in the relative contribution of escalating rents to diminishing profit margins. And not just the rent paid by restaurant owners, but the high rents that result in less and less money to spend on food generally, and on eating out in particular. Because housing costs are a bigger proportion of household income for poorer families, this also has a big impact on who can afford to eat out. I'm not a statistician, but I'd love to see an analysis that explores these issues.

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As a postscript, ONS figures show that while the proportion of household income spent on food has more than halved over the past 60 years, spending on housing costs has doubled.

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