This Friday, the Government has announced an increase in VAT for leisure services (Hospitality, restaurants, etcetera) after lowering it last year to help businesses most affected by the pandemic. It is important to remember that this is not yet back to pre-pandemic levels of 20%, which doesn’t happen until April next year.
Businesses’ in these sectors have argued that they cannot afford the increase, and will have to put the VAT prices on their customers. The rises from 5% to 12.5% will apparently hit these businesses too and many in the sector have called for the government to postpone the rise. For example, Wetherspoon’s has said they will have to increase the cost of every meal by 40p from this Friday, which the sector claims will deter customers and accelerate their downfall started by the pandemic.
So why is the Government doing this? The truth is, our country is in massive amounts of debt and the money gained by VAT will be invaluable in trying to resolve that. These cuts to VAT have made a massive difference in the past, in 2008 VAT was temporarily decreased to 15% and the Government lost £12.4 Billion, and it’s estimated that these VAT cuts will have cost £4.1 Billion. It’s quite clear the Government just can’t cope with their current financial issues without trying to restore the country to normality.
The Government has also raised the point of the unprecedented amount of support they’ve given private businesses’ such as the furlough scheme. It’s reasonable to expect these to end as we try to heal the economy and restore the country to pre-pandemic normality, given the amount of borrowing the treasury has had to do to deal with the pandemic. The timing, however, could be better, with businesses’ struggling to cope with the impacts of the HGV driver shortage already, and people struggling to travel to hotels thanks to the now resolving petrol crisis, and prices rising because of the shortages.
It’s impossible to say how much the rises in prices will affect the number of customers they get. People struggling because of the pandemic probably will ration themselves, but people who have the spare income are likely to continue going out as they had prior to the increase. It also doesn’t take into account people’s desire to return to normality and going out for meals as they had before. We’ll see. The fact is that the pandemic’s economic effects will impact all our lives and that’s really an unavoidable truth.
Many businesses have threatened to cut jobs, but considering they were coping with VAT at 20% without making cuts to jobs, that does seem a little rich and is perhaps suggestive of an expectable sense of panic. Even if they do cut jobs, it’s amazing unemployment hasn’t shot up considering the current economic climate, and there are increasing numbers of other jobs available again. Again, that’s more of an issue of speculation. Considering the bumpy ride we might have expected, the economy seems to be coping remarkably well, but who knows what the future holds.
Written by Adam Caudle
Research compiled by Steven Li