Northern Ireland Affairs Committee
Wednesday 2nd September 2026
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09:44
Speaker 1
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Speaker 1
So for every £100 that I take into my business on accommodation, the equivalent hotel in the Republic, taking £100 would make retain, sorry, £4.78 more on the VAT alone per room. That doesn't sound like a lot, but we are a high volume, low margin industry and that quickly adds up to hundreds of thousands of pounds within a business each year that we simply don't have. The margins have been so squeezed on all sides of the border and all parts of the UK by the cost of living and the cost of doing business, but that VAT differential is really putting pressure on our businesses at the moment.
09:45
09:45
09:45
Speaker 1
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Speaker 1
It's not only VAT. You also have rates. So in other parts of the UK there has been rates relief for hospitality. And those haven't been implemented in Northern Ireland. So that is also a challenge. But the one that is the biggest lever is quite simply the VAT differential. When you're looking at food at 9% in the Republic versus 20% in Northern Ireland, and you're looking at accommodation at 20% Northern Ireland versus the 13 in the Republic, there are instances where it goes the other way.
For example, the cost of room hire is VAT is higher in the republic. But in the case studies that have been presented to you by Hospitality Ulster, you'll see that even taken into account, where the tax regime is more punishing in the Republic, you're still looking at hotels, for example, that are working out at between 140 and £160,000 worse off purely due to location. So that's a like for like model. So if you take the hotel in the north and look from its ledgers at exactly what it's made, exactly what it's been taxed, and then you pretended that it was in the South.
The difference on the tax alone, same operating model, same split across the different revenue streams. You're looking at a huge amount of difference in margin. And this isn't about profitability. This is about the fact that margin supports jobs. It supports refurbishment. It supports jobs in rural areas. It supports jobs for young people. And ultimately, a hotel like mine is having to do things like postpone refurbishment work that is stopping the business from circulating money around the economy.
That's no quantity surveyors, it's no brickies. It's less money spent for in the local taxi trade going to the local launderette. So it has a big impact across the economy.
For example, the cost of room hire is VAT is higher in the republic. But in the case studies that have been presented to you by Hospitality Ulster, you'll see that even taken into account, where the tax regime is more punishing in the Republic, you're still looking at hotels, for example, that are working out at between 140 and £160,000 worse off purely due to location. So that's a like for like model. So if you take the hotel in the north and look from its ledgers at exactly what it's made, exactly what it's been taxed, and then you pretended that it was in the South.
The difference on the tax alone, same operating model, same split across the different revenue streams. You're looking at a huge amount of difference in margin. And this isn't about profitability. This is about the fact that margin supports jobs. It supports refurbishment. It supports jobs in rural areas. It supports jobs for young people. And ultimately, a hotel like mine is having to do things like postpone refurbishment work that is stopping the business from circulating money around the economy.
That's no quantity surveyors, it's no brickies. It's less money spent for in the local taxi trade going to the local launderette. So it has a big impact across the economy.
09:47
Speaker 3
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Speaker 3
I do we operate a specific specifically a wedding venue just across the border in a place called Ireland. Traditionally, we would have attended the wedding show in, in Dublin and would have would have liked to achieve 15 to 20 wedding sales at that. And that number rose post Covid to in and around 25 wedding sales over a two day wedding show. Last year we attended and we sold two weddings and. And the difference has become price.
We're no longer seen as a value proposition, and we're no longer seen as a value proposition because we simply can't afford to compete with the prices, because our cost base and our tax base is so very, very different. What we do know about the state of the industry is, is from our own from our own surveys, which is which is just been completed last quarter. 45% of all hospitality businesses in the North were not sure if they would survive the next 12 months.
So we have reached a point where the levers that that we're talking about, we believe it's now time to start pulling those or we will start to lose a significant portion of the industry. And beyond that, as Selina has mentioned, the ability to reinvest, the ability to train the the ability to do those things that we love to do is just being squeezed out of the industry alongside our margins.
We're no longer seen as a value proposition, and we're no longer seen as a value proposition because we simply can't afford to compete with the prices, because our cost base and our tax base is so very, very different. What we do know about the state of the industry is, is from our own from our own surveys, which is which is just been completed last quarter. 45% of all hospitality businesses in the North were not sure if they would survive the next 12 months.
So we have reached a point where the levers that that we're talking about, we believe it's now time to start pulling those or we will start to lose a significant portion of the industry. And beyond that, as Selina has mentioned, the ability to reinvest, the ability to train the the ability to do those things that we love to do is just being squeezed out of the industry alongside our margins.
09:48
09:48
Speaker 3
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Speaker 3
We would argue that VAT is the only only lever left in in Northern Ireland, specifically with VAT pilot that we've proposed. That would make a big enough difference across the industry at this stage. We understand that it's a big ask. However, we have modelled the total cost of that parity as a pilot to be between 200 and £300 million per year.
09:48
09:48
09:48
Gavin Robinson
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Gavin Robinson
09:49
09:49
Gavin Robinson
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Gavin Robinson
I think would be useful for the committee just to have a sense of how many participated. One of the fundamental questions around a scheme such as this, and it arose at the early stages, and one of your representatives was interviewed on it, was whether the benefits of any scheme would be passed on to consumers, or whether the benefits of such a scheme would form part of an increased profit margin. And I think, Selena, in fairness, in your answer, you're indicating the difference because you're talking about, you know, high scale, low margin business and you're talking about the opportunity to retain for investment and growth.
And all of that is, is part of business. And I understand particularly this scheme, it was time bound, it was short, it was quite particular. So only two accompanying children and to a five degree limit. But since those questions were raised at the start of the scheme, have hospitality Ulster and membership of Hospitality Ulster had a more in depth conversation about how members would, if there were to be a change in hospitality VAT, whether that would be to the benefit of consumer to encourage more spend, or whether that would be to the benefit of business or a blend of both.
And all of that is, is part of business. And I understand particularly this scheme, it was time bound, it was short, it was quite particular. So only two accompanying children and to a five degree limit. But since those questions were raised at the start of the scheme, have hospitality Ulster and membership of Hospitality Ulster had a more in depth conversation about how members would, if there were to be a change in hospitality VAT, whether that would be to the benefit of consumer to encourage more spend, or whether that would be to the benefit of business or a blend of both.
09:50
Speaker 3
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Speaker 3
The the ask at the at the moment is one of survival. It isn't one of necessarily prices being passed directly through. In fact, Adrian here coming from the leading the campaign for the reduction in the South, and that was implicitly not designed to be passed directly through what. What we're suggesting is it's on margins that need supported rather than our pricing. The industry does have footfall. We do have people who still want to use our our world class facilities, our world class attractions.
The problem that we face is that we just do not have any margin anymore, and we don't have capacity to increase. So this is about protecting those businesses and protecting those jobs. The notion that this is straight to the bottom line and just more profitable, I think, probably distorts that a little bit. I think this is more about the ability to reinvest, the ability to hire more, the ability to extend our opening hours, which are currently shrinking because of the cost of doing business.
So it is a blend in answer to your question. Yes, but I think it's it's more nuanced and directly will it go to the bottom line or to the customer.
The problem that we face is that we just do not have any margin anymore, and we don't have capacity to increase. So this is about protecting those businesses and protecting those jobs. The notion that this is straight to the bottom line and just more profitable, I think, probably distorts that a little bit. I think this is more about the ability to reinvest, the ability to hire more, the ability to extend our opening hours, which are currently shrinking because of the cost of doing business.
So it is a blend in answer to your question. Yes, but I think it's it's more nuanced and directly will it go to the bottom line or to the customer.
09:51
Gavin Robinson
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Gavin Robinson
I understand the need to protect margin, and I understand there's an element of what you're suggesting is about survivability of business. How then would that deal with the consumer who has a choice, particularly for a high spend? Like, I struggle to think from my constituency that somebody in East Belfast is going to travel across the border for lunch. You know, that might have a lower VAT rate, right? But when somebody is getting into the realms of a wedding on a border area, and you're talking of tens of thousands of pounds in a maybe a material difference, but if what you're indicating means that there would be no front of house change to the cost to the consumer, how do you incentivize someone then through this change to stay in Northern Ireland, rather than take their money into the Republic of Ireland?
09:52
Speaker 1
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Speaker 1
So I have exactly the sort of situation you're talking about. My hotel is about three and a half miles from the border, and we would normally have around 40% of our occupancy at peak time would be coming from tour operators. So they are marketed the whole island of Ireland. They often fly into Dublin, they bring the coach loads of visitors and they fill up the hotels. My demand in July was significantly down more than 25% down year on year, and I spoke to the coach operators who have been regulars, and I'm asking why, and I'm expecting to hear answers like ETA fuel costs.
All of those things were happening. But what I repeatedly got back was price. These guys are working on their own small margins. They're booking tens of thousands of bed nights, and they are choosing at that £5 cheaper that can afford to be done in the Republic to, to, to keep the business in the Republic. The down side of that at the moment, of course, is that hospitality is essentially an export industry. So that is people who are not bringing the spend new, fresh cash into the economy in Northern Ireland.
If I had the ability to lower my prices to retain that, I could take a percentage of my business at that lower rate, I'd be able to afford to do so without losing the margin, and I would be bringing new money into Northern Ireland. So there has to be some pass through. But I think it would be disingenuous of us to come in here and say a VAT cut would all be directly passed to the consumer, because we'd be asking you to fund a seal.
All of those things were happening. But what I repeatedly got back was price. These guys are working on their own small margins. They're booking tens of thousands of bed nights, and they are choosing at that £5 cheaper that can afford to be done in the Republic to, to, to keep the business in the Republic. The down side of that at the moment, of course, is that hospitality is essentially an export industry. So that is people who are not bringing the spend new, fresh cash into the economy in Northern Ireland.
If I had the ability to lower my prices to retain that, I could take a percentage of my business at that lower rate, I'd be able to afford to do so without losing the margin, and I would be bringing new money into Northern Ireland. So there has to be some pass through. But I think it would be disingenuous of us to come in here and say a VAT cut would all be directly passed to the consumer, because we'd be asking you to fund a seal.
09:54
09:54
Gavin Robinson
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Gavin Robinson
And I said, outside of being to your hotel, I've been to your facilities. And two of them I think as well, and the lovely Bridgerton tree that I mentioned. And also I like the roses out in the in the walkway through as well. But that's an aside. Do you know, I mean, you've talked about decreased footfall, particularly from coach operators. Selina, do you know whether this scheme more broadly through Hospitality Ulster encouraged additional footfall, or did it encourage footfall to move from places that were operating at from those that did not? Or did it have a negligible impact at all?
09:54
Speaker 1
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Speaker 1
With you thinking specifically about the 5% on the children's attractions? So I can speak only from personal experience. The scheme is so newly closed that we haven't had time to to aggregate data and even collect the data from everybody. I would have a fair amount of children coming through the hotel. We lowered the prices for our kids meals to reflect the change in VAT. It didn't change the volume, but as a parent, I saw the lower vat when I took my kids out to various attractions and I appreciated it, so I hope it was beneficial to the parents.
It did not, in my particular instance, encourage more people out. But then I'm a hotel with a very broad mix, not specifically family.
It did not, in my particular instance, encourage more people out. But then I'm a hotel with a very broad mix, not specifically family.
09:55
Gavin Robinson
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Gavin Robinson
And I think just finally for me, I don't need an answer to this question because I suspect you don't have it. You know, it has been so recent. But if we. And this inquiry was proposed by Claire Hannah, I think in doing this report and this inquiry, what we're trying to see is can we provide a better evidence base to push the argument to see a reduction in hospitality, VAT? And so an evidential base, even if it is for us from a small scheme over a two month or three month period, would be really helpful.
So could I encourage you, if you don't have the numbers at this stage, the impact on footfall, the impact on profitability at this stage to canvass your members and when you're in a position to share that evidence with us, to share it with us so we can draw conclusions from it.
So could I encourage you, if you don't have the numbers at this stage, the impact on footfall, the impact on profitability at this stage to canvass your members and when you're in a position to share that evidence with us, to share it with us so we can draw conclusions from it.
09:56
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09:56
Sorcha Eastwood
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Sorcha Eastwood
And with that, I just want to thank the chair for bringing this to the table. It's great to have people here today. I can see Colin, I can see others and the and the audience there who have been working really hard over the last number of years to try and bring this to the fore. And I think Michael and Selina, you've both already sort of preempted my question, which is about the clear differential between the Republic of Ireland and the north of Ireland in terms of that VAT differential rate.
And clearly, you've already outlined a number of scenarios there, Michael. You've referred to the fact that you went to a trade show. I think if I've picked you up correctly and you found a noticeable drop in people who were wanting to come forward, Selena, you're clearly in a perfect position for this inquiry because you're so close to the border. And Derry is one of those places where people are coming from right across the island of Ireland all the time.
So it is somewhere that isn't just marketable within Northern Ireland. It's marketable right across the island of Ireland. With that being said, you've got two areas there, Enniskillen and Derry, that are marketable within a domestic home market, but also in that wider sense. What are the other specific instances you found this summer that would maybe shed light on the fact that that rate in the Republic of Ireland is really hampering our businesses in the North.
And clearly, you've already outlined a number of scenarios there, Michael. You've referred to the fact that you went to a trade show. I think if I've picked you up correctly and you found a noticeable drop in people who were wanting to come forward, Selena, you're clearly in a perfect position for this inquiry because you're so close to the border. And Derry is one of those places where people are coming from right across the island of Ireland all the time.
So it is somewhere that isn't just marketable within Northern Ireland. It's marketable right across the island of Ireland. With that being said, you've got two areas there, Enniskillen and Derry, that are marketable within a domestic home market, but also in that wider sense. What are the other specific instances you found this summer that would maybe shed light on the fact that that rate in the Republic of Ireland is really hampering our businesses in the North.
09:57
Speaker 1
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Speaker 1
So if you look at the visitor numbers into Northern Ireland this year, they are up year on year. But what we're seeing is an increased number of those are day trips. So people are choosing to to cross the border to visit, but taking up what they see as a cheaper price. You know, as a consumer, you don't see two different VAT regimes. You just see the price on the bedroom. So they may choose to stay in in the Republic.
And they're not choosing to stay here. Of course, that impacts me as the hotel, as the obvious one, but it also impacts the cafes that they might have stayed in, the pubs, they might have had a drink in the retail. If they'd stayed, they would have spent more money, more time within the north. So all of those industries are being impacted, the taxi drivers, and it goes so much further. A hotel is very good at recycling the money that it brings in out to the local sort of micro economy, whether that is through your wedding supply vendors, right the way through to the people who, you know, clean the windows, who build the extensions.
It is a huge, huge difference. So what seems like it's only affecting our industry has a knock on effect, especially through smaller, more rural cities. You know, Derry is very isolated, very northwest. And, and tourism is a huge part in supporting it. So you can see a downturn in everything. And we really need to get that fresh money into the economy.
And they're not choosing to stay here. Of course, that impacts me as the hotel, as the obvious one, but it also impacts the cafes that they might have stayed in, the pubs, they might have had a drink in the retail. If they'd stayed, they would have spent more money, more time within the north. So all of those industries are being impacted, the taxi drivers, and it goes so much further. A hotel is very good at recycling the money that it brings in out to the local sort of micro economy, whether that is through your wedding supply vendors, right the way through to the people who, you know, clean the windows, who build the extensions.
It is a huge, huge difference. So what seems like it's only affecting our industry has a knock on effect, especially through smaller, more rural cities. You know, Derry is very isolated, very northwest. And, and tourism is a huge part in supporting it. So you can see a downturn in everything. And we really need to get that fresh money into the economy.
09:58
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09:58
Speaker 3
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Speaker 3
you. I suppose I hope this is answering your question, but there has always been a fat differential and the the change that has occurred. And the reason I think this is becoming more and more time sensitive is our ability to deal with that differential has been eroded, and that's been eroded through increases in the national living wage, increases in national insurance contributions and the thresholds and our huge increases in our supply chains. Those things have happened in the interim.
And now, in addition, the additional VAT cut into us to the south has just really, for the first time, has a feeling that that differential as the as the key pinch point before we absorb that into margin. Now we can't afford to.
And now, in addition, the additional VAT cut into us to the south has just really, for the first time, has a feeling that that differential as the as the key pinch point before we absorb that into margin. Now we can't afford to.
09:59
Sorcha Eastwood
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Sorcha Eastwood
Yeah, I completely agree with you. And, you know, I've highlighted that strongly over the last number of years. And I suppose because we've sort of covered point two a little bit, we're talking clearly here about the contrast with the Republic of Ireland. You've mentioned tourism. Selena, in your opening remarks, you mentioned young people specifically, and I'm acutely aware of the Melbourne report and what that says about the whole of the UK and also including Northern Ireland.
We have a completely different ecosystem in the south of Ireland. And Adrian, I may be hoping that you can maybe shed a wee bit of light on skill net, for example, and how that leads directly into people going into hospitality, not just as although they're very welcome part time jobs or summer jobs. But you've said there, Michael, that you are now at the stage where you feel that the that lever is the only one left to pull.
Do you think there's also a question around the ecosystem where we're supporting people into hospitality as a long term career path with professionalism, and do you think that could maybe play a role here for future success going forward?
We have a completely different ecosystem in the south of Ireland. And Adrian, I may be hoping that you can maybe shed a wee bit of light on skill net, for example, and how that leads directly into people going into hospitality, not just as although they're very welcome part time jobs or summer jobs. But you've said there, Michael, that you are now at the stage where you feel that the that lever is the only one left to pull.
Do you think there's also a question around the ecosystem where we're supporting people into hospitality as a long term career path with professionalism, and do you think that could maybe play a role here for future success going forward?
10:00
Speaker 3
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Speaker 3
Absolutely. And we are doing a significant, significant amount of work around skills, around training and exactly that that that progression and that that career path to make hospitality a more viable option for young people to come into work. And you did mention that those jobs were grateful. But we are a great employer of casuals, of weekend staff and of flexibility for people, and we create that. But the goal for us, for us obviously, is to to have those jobs, those, those, those well-paid jobs, those secure jobs and that career progression so people can see it.
And we are working on that in the background. Again, the ability to do that and the ability to invest in that is being diminished simply by having shrinking and shrinking margins. That is the the reality of what we're seeing and what we're hearing from our members.
And we are working on that in the background. Again, the ability to do that and the ability to invest in that is being diminished simply by having shrinking and shrinking margins. That is the the reality of what we're seeing and what we're hearing from our members.
10:01
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10:01
Speaker 1
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Speaker 1
We are at the point, let's be honest, that we've seen those over 900 jobs lost. I have not we've not laid off any staff, but we've allowed a certain amount of attrition. So on one hand, we want to bring young people into the industry. On the other hand, we simply no longer have the funds to do it. We are we are stuck. We are in survival mode. And the reason that I think we keep coming back to VAT is that the reality here is pretty stark.
If there isn't some action taken, we're all going to be watching an industry erode and it's a big industry and it's very important to Northern Ireland. It's the fourth biggest employer. It spreads out wealth across rural and urban areas. It employs a lot of women. It employs a lot of young people. You can come into it whether you're skilled, you can upskill through it. It's got high paid jobs. It's got short term jobs.
It's so hugely important to our to our area. And what we're seeing already is the decline in jobs. What we're seeing already is the closure of businesses, and we just can't keep clinging on. Our reserves have been eaten away by Brexit, by Covid, by cost of living, by cost of doing business crisis. It has just got to an unsustainable point.
If there isn't some action taken, we're all going to be watching an industry erode and it's a big industry and it's very important to Northern Ireland. It's the fourth biggest employer. It spreads out wealth across rural and urban areas. It employs a lot of women. It employs a lot of young people. You can come into it whether you're skilled, you can upskill through it. It's got high paid jobs. It's got short term jobs.
It's so hugely important to our to our area. And what we're seeing already is the decline in jobs. What we're seeing already is the closure of businesses, and we just can't keep clinging on. Our reserves have been eaten away by Brexit, by Covid, by cost of living, by cost of doing business crisis. It has just got to an unsustainable point.
10:02
Sorcha Eastwood
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Sorcha Eastwood
I think you've just covered the last point there very, very effectively. And I suppose just in closing, we've had such a brilliant summer and we're in Ireland with the flower, and that wouldn't have been possible without hospitality, where the land of 100,000 welcomes and we could not do without our hospitality, our front of house and tourism. And I suppose I just want to make clear for the record, people talk about hospitality and they think it's someone serving a plate of food or pulling a pint.
It's so much more than that. And having come from an initially a customer service background, unless you have that good, strong welcome to Northern Ireland or the Republic of Ireland, as soon as you get off that tour bus, you're not going to come back. And it's not about the VAT cut then necessarily. It's about why are people not coming here? And of course we have so much to offer, I suppose , just for one last race statement, why do you think the VAT lever is the most important that can be pulled in? Adrian, if you wouldn't mind, you obviously have had that experience in the South.
So I'm wondering, is there anything that you can bring to the table in terms of just making that argument for that that cup?
It's so much more than that. And having come from an initially a customer service background, unless you have that good, strong welcome to Northern Ireland or the Republic of Ireland, as soon as you get off that tour bus, you're not going to come back. And it's not about the VAT cut then necessarily. It's about why are people not coming here? And of course we have so much to offer, I suppose , just for one last race statement, why do you think the VAT lever is the most important that can be pulled in? Adrian, if you wouldn't mind, you obviously have had that experience in the South.
So I'm wondering, is there anything that you can bring to the table in terms of just making that argument for that that cup?
10:03
Speaker 5
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Speaker 5
Thank you very much. And when we had the VAT increase from 9% to 13.5% post pandemic, we saw 16,000 jobs lost in our food service industry, our restaurants or cafes, pubs that serve food that went on for about 18 months. We went to government and we pointed out the only way that we could make our businesses viable was the reduction in the VAT rate back to 9%. And since then, since the announcement last October, we've seen a complete slowdown in the number of closures of businesses.
Employment is up already since the VAT rate was reduced , and businesses have now the confidence and the stability, because the margin of 4.5% from the government, because we have spoken already about the pass through our government, made it very clear there's no onus on on each business to pass it on to the consumer. This was about viability, sustainability and survivability for businesses within the tourism industry, which is hugely beneficial for the island of Ireland from an employment perspective and for many regional and rural villages and towns across across the island.
So 9% VAT rate was our go to for the government. We did a it's for food service only. Accommodation is on 13.5% still, but we're. And. But all the hotels still get the 9% on food service within their properties. So it has been a game changer in my view, for our tourism and hospitality economy.
Employment is up already since the VAT rate was reduced , and businesses have now the confidence and the stability, because the margin of 4.5% from the government, because we have spoken already about the pass through our government, made it very clear there's no onus on on each business to pass it on to the consumer. This was about viability, sustainability and survivability for businesses within the tourism industry, which is hugely beneficial for the island of Ireland from an employment perspective and for many regional and rural villages and towns across across the island.
So 9% VAT rate was our go to for the government. We did a it's for food service only. Accommodation is on 13.5% still, but we're. And. But all the hotels still get the 9% on food service within their properties. So it has been a game changer in my view, for our tourism and hospitality economy.
10:05
Tonia Antoniazzi
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Tonia Antoniazzi
Okay. I just wanted to ask Selena and Michael, the Department for Work and Pensions has an initiative which called the Youth Jobs Grant, which will give small and medium enterprises businesses, maybe similar to yourselves, £3,000 for taking on somebody that's been a young person that's been unemployed for six months. Is that something that the tourism sector in Northern Ireland can avail itself of?
10:05
Speaker 1
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Speaker 1
Not to the best of my knowledge, but I cannot give you a concrete answer on that. But many of the schemes here do not translate, including a lot of the apprenticeship levies that are available here, are not available in Northern Ireland. So there are different challenges that we have to face. But in that particular one, I'm afraid I don't know as a concrete answer.
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10:06
Gavin Robinson
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Gavin Robinson
Can I just just take that a step further because Michael's absolutely right in what he said. What I'm more interested then to understand is the Hospitality Ulster approach, the Department of Economy. Do you say to the Economy Minister, economy Minister Block Grant gets a Barnett consequential from a scheme that works very well for businesses elsewhere in United Kingdom? Are you advocating for that money? Have you got that money in your budget line? Why aren't you utilising it in this positive way? And if so, what does she say?
10:07
Speaker 3
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Speaker 3
We haven't had any traction to date with with, with any of the benefits that are that are deemed fit for, for the mainland UK that don't come over. So that would be rate support the levy or perhaps the, the levy that you're talking about in terms of the young employer. We do regularly bring that to the attention of the minister. So
10:07
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10:08
Speaker 5
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Speaker 5
Thank you very much for the question. It was a ground up campaign in terms of. We showed the government the devastation in terms of the business closures right across the Republic , and predominantly hit smaller businesses, larger than as opposed to larger businesses. So you saw a number of a major number of coffee shops, small bars closing down because of the cost cost of business 2024, we saw our business costs increase substantially.
Food food inflation was off the Richter scale. Wage inflation was in parallel to that. So everybody was being squeezed and margin was eroded. We're not in the charity business. We're in the business of making a small margin. A normal margin in a restaurant should be about 10%. That's every student that goes to hospitality college 10% is your margin. We were working off a 2 to 3% margin.
Any any increase in your in your in your variables in terms of your, your, your energy with the Ukraine crisis, food and food costs went up. That margin was gone. So the vast majority of businesses were seeing us not making any profit, dipping into reserves or closing their doors. So when we saw 16,000 jobs being lost in out of. That's 10% of our workforce over a 12 month period.
Something had to give. And while the government were at full employment, we saw hospitality as being an outlier where labor intensive, we're usually the first port of call for young people to get a job in the Republic. We give them the first experience of of getting up early in the morning and going to work, earning, earning a wage and be self-sufficient. And we wanted to make sure that our most important asset in tourism is our people.
Our people is our most important asset. When we saw jobs being lost, something had to give. And fortunately enough, the government saw that the 9% VAT rate was a catch all approach as opposed to a rates reduction where not everybody would get it or a grant not not everybody would get it, a vast reduction, everybody gets it. And that improves the margin. And it was about survivability and sustainability for our industry.
Thank you.
Food food inflation was off the Richter scale. Wage inflation was in parallel to that. So everybody was being squeezed and margin was eroded. We're not in the charity business. We're in the business of making a small margin. A normal margin in a restaurant should be about 10%. That's every student that goes to hospitality college 10% is your margin. We were working off a 2 to 3% margin.
Any any increase in your in your in your variables in terms of your, your, your energy with the Ukraine crisis, food and food costs went up. That margin was gone. So the vast majority of businesses were seeing us not making any profit, dipping into reserves or closing their doors. So when we saw 16,000 jobs being lost in out of. That's 10% of our workforce over a 12 month period.
Something had to give. And while the government were at full employment, we saw hospitality as being an outlier where labor intensive, we're usually the first port of call for young people to get a job in the Republic. We give them the first experience of of getting up early in the morning and going to work, earning, earning a wage and be self-sufficient. And we wanted to make sure that our most important asset in tourism is our people.
Our people is our most important asset. When we saw jobs being lost, something had to give. And fortunately enough, the government saw that the 9% VAT rate was a catch all approach as opposed to a rates reduction where not everybody would get it or a grant not not everybody would get it, a vast reduction, everybody gets it. And that improves the margin. And it was about survivability and sustainability for our industry.
Thank you.
10:10
10:10
Speaker 3
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Speaker 3
I think just you said that we're we're failing where the Republic managed. I think we're at the very beginning of this process. And I think sitting in this room is, is certainly more positive than than we have ever been with this argument. You'll be very aware of the That's the Problem campaign currently being led by UK hospitality. And we very much support that. And we're co-signers of that argument. This this isn't in in opposition to that.
It's actually in support of that. And what we are saying is that that allowing us this and us to be the pilot will provide the evidence for that. That's the problem campaign to to be rolled out across the rest of the.
It's actually in support of that. And what we are saying is that that allowing us this and us to be the pilot will provide the evidence for that. That's the problem campaign to to be rolled out across the rest of the.
10:11
10:11
Speaker 5
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Speaker 5
Under 670 million cost, which the. Our Department of Finance said it will cost the Exchequer. If you have a business that closes down, you're now going into unemployment benefit, you're going into liquidation, you're going to have loss of taxes, etc.. So the cost benefit analysis that we have show that by bringing the VAT rate to 9% for food service, it will improve our exchequer figures in terms of revenue coming in because businesses are staying open and it will be cost neutral in the future.
So when the VAT rate was reduced at the height of the banking crisis in 2011, from 13.5 to 9, we had it in place for 17 out of 16 out of out of 18 years. So that showed that the government, many governments believed in the VAT rate, but when it was brought up as a by in post pandemic, we saw that that was a that hit our businesses in terms of margin. And we could see that it was the only only show in town in terms of a survivability for our industry.
So when the VAT rate was reduced at the height of the banking crisis in 2011, from 13.5 to 9, we had it in place for 17 out of 16 out of out of 18 years. So that showed that the government, many governments believed in the VAT rate, but when it was brought up as a by in post pandemic, we saw that that was a that hit our businesses in terms of margin. And we could see that it was the only only show in town in terms of a survivability for our industry.
10:12
10:12
10:12
Speaker 1
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Speaker 1
Everyone that is over the VAT threshold. So there are areas I sort of briefly that you'll see in the appendixes of the written report we've submitted that you've got access to anonymized, but accounts from a number of our members. But it would be anyone who has a food and accommodation benefit. Now, there is going to be there are areas, as I said, where the VAT is slightly lower in the north than it is in the south, and that is particularly on alcohol and room hire.
So there is a little bit more modelling work that would need to be done , and that modelling work would work out exact costs. I know there's ballpark figures in here. Really would need to be done by, by the experts and, and work out exactly what the cost would be. But we believe having seen how it's working and the latest, that reduction is very new into the Republic of Ireland, that a cost benefit analysis would demonstrate that it would be beneficial overall to the economy in Northern Ireland.
So there is a little bit more modelling work that would need to be done , and that modelling work would work out exact costs. I know there's ballpark figures in here. Really would need to be done by, by the experts and, and work out exactly what the cost would be. But we believe having seen how it's working and the latest, that reduction is very new into the Republic of Ireland, that a cost benefit analysis would demonstrate that it would be beneficial overall to the economy in Northern Ireland.
10:13
Speaker 1
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Speaker 1
That is why we're here to ask you if you we would love to know if there's a way to fund looking into this properly, because that is not in our our gift. We can show you. We're happy to open the books anywhere we can, but the 2 to 300 million that Michael has quoted is in here. But it is. And it showed that it's been worked out in two different ways. But this is very rough.
What we think would be the next step is to ascertain exactly what what the cost benefit would be. And that is something that we have gone to our Finance and Economy minister in Stormont, and they have jointly written a letter to Treasury to look into that. And we would appreciate support in trying to to drive that forward.
What we think would be the next step is to ascertain exactly what what the cost benefit would be. And that is something that we have gone to our Finance and Economy minister in Stormont, and they have jointly written a letter to Treasury to look into that. And we would appreciate support in trying to to drive that forward.
10:14
10:14
10:14
Speaker 6
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Speaker 6
Thank you. Thank you for that answer. Selena. So just building on that because I think you've sort of hinted at the answers, but the tax policy associates, Tax policy associates estimate that the VAT cut would offset the costs of national insurance and minimum wage increases that have hit business. I was wondering what your response to that is.
10:14
Speaker 1
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Speaker 1
I guess it probably would. I haven't thought about my personal accounts in that sense. Our our wage bills have gone up and absolutely happy to to pay people. Well, we want to do that. But of course, the national insurance change at the same time was particularly challenging for the hospitality industry because it meant that so many of our casual workers that had not met the hours to hit that threshold before that was a suddenly a new cost that we weren't expecting, that we hadn't planned for our the biggest cost, certainly to my business is our team.
And I think it rightly should be because hospitality is about the people. But the percentage of my overall turnover that that takes up has gone up massively in the past ten years. So it used to be that my the cost of my wage bill essentially was about 36% of my turnover. And that is now pushing on 50%. That is hard. But I can do that if I get some slack somewhere else.
And that's still putting money back into people's pockets again to spend it in the local economy. So there is a balancing act there.
And I think it rightly should be because hospitality is about the people. But the percentage of my overall turnover that that takes up has gone up massively in the past ten years. So it used to be that my the cost of my wage bill essentially was about 36% of my turnover. And that is now pushing on 50%. That is hard. But I can do that if I get some slack somewhere else.
And that's still putting money back into people's pockets again to spend it in the local economy. So there is a balancing act there.
10:15
Speaker 6
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Speaker 6
And I suppose looking at the wider picture, that the VAT cut would support all businesses regardless of their size, profitability, including multinational fast food chains. So would a more targeted measure to businesses like yourselves be more appropriate to helping businesses struggle? And what do you think that particularly could be? So rather than benefiting the McDonald's of this world, what do you think might be a better targeted approach to the sort of businesses that you guys are on?
10:16
Speaker 1
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Speaker 1
I would point out that in Northern Ireland, the vast majority of our businesses are independents. We have an extremely high number of independents, and maybe these you might know some of the figures better than I do. So I don't think it would be the same support of multinationals that you might be considering if you were operating in the mainland here. And I think the reason that if you start targeting it, it gets very complicated where the grants going, who qualifies it? Also, there's a time there is a time pressure here.
And I'm not saying that something can be done today, but something doesn't get done reasonably quickly. Then the outworkings are going to to happen and we're going to end up in a very tight situation. But perhaps.
And I'm not saying that something can be done today, but something doesn't get done reasonably quickly. Then the outworkings are going to to happen and we're going to end up in a very tight situation. But perhaps.
10:17
Speaker 3
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Speaker 3
There may be more evidence from the reaction from the reduction in the Republic of Ireland. But the multinationals and you mentioned McDonald's work very, very tightly on on margins. And the example of McDonald's, I think, would be directly to pass through that would come through in lowered prices because of the way their margins work. I don't think their margins will be affected because we're such a large proportion of our businesses are smaller independents. We just do not have the same supply chain network.
We don't have the same cost reduction mechanisms that these large corporations have. And I think it's an important distinction between our two industries in in Northern Ireland very, very specifically, is that we don't have large chains, we don't have large breweries. So the margins and the wage costs that we're talking about would not be countenanced anywhere else. We deal with them because we have to deal with them and that their all of our costs are higher through, you know, post Brexit.
We do have certainly have a surcharge on on food supply, on beer supply. We are dealing with all those additional costs, which is forms part of the reason why we are a unique case and why we're bringing this case to you as as a separate pilot, because we think that the need is slightly different.
We don't have the same cost reduction mechanisms that these large corporations have. And I think it's an important distinction between our two industries in in Northern Ireland very, very specifically, is that we don't have large chains, we don't have large breweries. So the margins and the wage costs that we're talking about would not be countenanced anywhere else. We deal with them because we have to deal with them and that their all of our costs are higher through, you know, post Brexit.
We do have certainly have a surcharge on on food supply, on beer supply. We are dealing with all those additional costs, which is forms part of the reason why we are a unique case and why we're bringing this case to you as as a separate pilot, because we think that the need is slightly different.
10:18
Speaker 6
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Speaker 6
I suppose my last question, chair, is in terms of the evidence that the cut would support growth. Is it more of that the cut would bring in the sustainability of your sort of businesses, and therefore it's almost the reverse, the negative side of the flip side of the coin that actually, by bringing the cut to cover off the cost increases, there been the economy would grow because you're not going to go out of business and relate to those supply chains.
Or is it deeper than that? Is it would it grow the economy? Is that just too simplistic? Would it grow the economy with that cut? When you're talking about such fine margins.
Or is it deeper than that? Is it would it grow the economy? Is that just too simplistic? Would it grow the economy with that cut? When you're talking about such fine margins.
10:19
Speaker 3
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Speaker 3
I suppose 2 or 3 direct answers to that. And the first one is that I think we should remember that we're marketed on an all island basis. And while that has been successful, we are currently victims of our geography because the cut is directly impacting our ability to compete as a single island. So I would deem bringing business in from the Republic of Ireland or Republic of Ireland to the north as as an export that that export is currently being diminished because we can't bring those that business and sell that service and those goods to, to people coming into the into into the province.
I think secondary to that, it is certainly about survival. It is certainly and I think that you intimated that that this is not necessarily about growth. And there is a certain amount of protectionism here that what we are attempting to avoid is a fairly cataclysmic collapse of the industry in the area. We're coming to you with lived experience, and I can tell you, in our business, I've been in the business for 25 years, and it has never been more difficult.
And it's it's not an issue with footfall. It's not an issue with how hard we're working. It's not an issue with what we're providing to our customers. The issue has become that the pressures from outside and those multiplying pressures are leaving it unsustainable. And to leave it as simply as that is the only issue I think is overly simplistic. I think what we're trying to impress is that the the additional food costs the 1 or 2% additional food costs as a result of of Brexit, the national insurance increase on our specifically on our industry because of the threshold change and the amount of people that we employed as casuals and those people being captured has had a proportionately larger impact on our wage bill.
And that's impacting on that side. And we're also have reached and are reaching a ceiling of how much we can charge for our products going out again, because we have a relatively low income level in the province. So we're being squeezed from both sides. And the VAT lever, we believe is, is the one that will relieve that across the board.
I think secondary to that, it is certainly about survival. It is certainly and I think that you intimated that that this is not necessarily about growth. And there is a certain amount of protectionism here that what we are attempting to avoid is a fairly cataclysmic collapse of the industry in the area. We're coming to you with lived experience, and I can tell you, in our business, I've been in the business for 25 years, and it has never been more difficult.
And it's it's not an issue with footfall. It's not an issue with how hard we're working. It's not an issue with what we're providing to our customers. The issue has become that the pressures from outside and those multiplying pressures are leaving it unsustainable. And to leave it as simply as that is the only issue I think is overly simplistic. I think what we're trying to impress is that the the additional food costs the 1 or 2% additional food costs as a result of of Brexit, the national insurance increase on our specifically on our industry because of the threshold change and the amount of people that we employed as casuals and those people being captured has had a proportionately larger impact on our wage bill.
And that's impacting on that side. And we're also have reached and are reaching a ceiling of how much we can charge for our products going out again, because we have a relatively low income level in the province. So we're being squeezed from both sides. And the VAT lever, we believe is, is the one that will relieve that across the board.
10:21
10:21
Speaker 3
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Speaker 3
My own I'm I'm I'm taking that from our own food inflation and the prices that we're seeing in terms of prices that are available wholesale on the mainland versus ours, simply because the our food supply chain is delivered primarily by five main suppliers, and they are not coming through or they are coming through the red channel when they're importing or bringing over from the mainland so that they have the availability to send those goods into the south. Some of the warehousing is in the south, so there is additional checks, additional costs and additional time, which is putting additional cost pressure on our on our supply chain.
10:22
10:22
David Smith
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David Smith
Thank you chair. Good morning everyone. It's good to have you with us. We're covering almost every angle it seems of of this question. And I think all of us around here, certainly from our own constituency work, wherever we are in the United Kingdom, we recognise it's very difficult for hospitality at the moment. There are a lot of cost pressures. It's harder than than it's been for a long time to to actually make a profit.
The question I have really, I suppose, is, is reducing VAT the best way to relieve the pressure on your industry? And as we heard from Alex, question about, you know, some of the huge multinationals, for example, and you were saying about the diversity within hospitality and the prevalence of independence in Northern Ireland, I wonder if it's a bit of a sledge hammer to crack a nut. And so feel free to disagree with that.
But you were saying, Michael, there are lots of different cost pressures. One of the first things that the Prime Minister did when he took up his office in the rest of the UK was bring an immediate 20% reduction in business rates to live music venues, pubs, etc. that's not all hospitality. But first of all, there should be a flow through in the Barnett consequentials for that. So there should be some additional funding at some point coming through to the Northern Ireland Executive and I suppose, building to a question, have you considered , or are you lobbying the Northern Ireland Executive on business rates, regional or local, that are obviously determined in Northern Ireland and are significantly, as I understand it, larger comparative to other parts of the UK? What are you saying, if anything, about the Barnett consequentials that could come through from decisions that are being made here and is that whole sphere? Potentially a more sophisticated way to reduce pressure on the hospitality industry in Northern Ireland?
The question I have really, I suppose, is, is reducing VAT the best way to relieve the pressure on your industry? And as we heard from Alex, question about, you know, some of the huge multinationals, for example, and you were saying about the diversity within hospitality and the prevalence of independence in Northern Ireland, I wonder if it's a bit of a sledge hammer to crack a nut. And so feel free to disagree with that.
But you were saying, Michael, there are lots of different cost pressures. One of the first things that the Prime Minister did when he took up his office in the rest of the UK was bring an immediate 20% reduction in business rates to live music venues, pubs, etc. that's not all hospitality. But first of all, there should be a flow through in the Barnett consequentials for that. So there should be some additional funding at some point coming through to the Northern Ireland Executive and I suppose, building to a question, have you considered , or are you lobbying the Northern Ireland Executive on business rates, regional or local, that are obviously determined in Northern Ireland and are significantly, as I understand it, larger comparative to other parts of the UK? What are you saying, if anything, about the Barnett consequentials that could come through from decisions that are being made here and is that whole sphere? Potentially a more sophisticated way to reduce pressure on the hospitality industry in Northern Ireland?
10:24
Speaker 1
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Speaker 1
Firstly, I'd say we need a sledgehammer. The time for a nutcracker has come and gone. Secondly, I'd say that absolutely we lobby, lobby, installment. In fact, a very successful lobbying campaign by Hospitality Ulster paused our rates revaluation in Northern Ireland that would have cost many of our members a. Often a doubling, sometimes a tripling of their rates bill. So that was paused. Absolutely. We'd love to see the Barnett consequentials coming through and being spent on hospitality.
We certainly can ask for that. But that is in the hands of of Stormont to assess their own priorities, their own cost pressures. And we're not here to say, take the money from health and give it to hospitality. We're here to say we need support for the economy. And I think the biggest difference that we've got between hospitality, which is struggling everywhere. I'm in complete agreement. Margins are squeezed everywhere, but not only are our margins squeezed, but our competitors margins just three miles away are not under the same pressure.
So that means that competitive has gone as well as viability.
We certainly can ask for that. But that is in the hands of of Stormont to assess their own priorities, their own cost pressures. And we're not here to say, take the money from health and give it to hospitality. We're here to say we need support for the economy. And I think the biggest difference that we've got between hospitality, which is struggling everywhere. I'm in complete agreement. Margins are squeezed everywhere, but not only are our margins squeezed, but our competitors margins just three miles away are not under the same pressure.
So that means that competitive has gone as well as viability.
10:25
Speaker 3
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Speaker 3
Thank you. Thank you. And I do disagree with you as well about the sledgehammer, simply because this would be very different if we were coming and we were asking for something that was completely out of the ordinary. But we are the the UK across the European Union are direct tourism competitors. Only one country has a higher tourism VAT, and the need for support has been recognised in France, in Germany, in every other European country, and now in our direct competitors in the Republic of Ireland.
And that. That's then multiplied by the fact that we are marketed as a single destination. We're not asking for a for a handout in any way. We're we're asking for fairness and parity, and we're asking that we can compete with our nearest neighbours in a way that's fair. And rates reductions and other measures simply wouldn't do that. That isn't to say we're not asking for the support at a local level, and we're not asking for those consequentials to come through.
History has shown us that that is not the case. History has shown us that we do have pressures in our own government, and with financial pressure in our own government and priorities, unfortunately, at that point take over and we haven't historically seen those. So we are working on both fronts. We are asking for both in different ways, but it's not, I don't believe, an unreasonable question or an unreasonable ask.
And that. That's then multiplied by the fact that we are marketed as a single destination. We're not asking for a for a handout in any way. We're we're asking for fairness and parity, and we're asking that we can compete with our nearest neighbours in a way that's fair. And rates reductions and other measures simply wouldn't do that. That isn't to say we're not asking for the support at a local level, and we're not asking for those consequentials to come through.
History has shown us that that is not the case. History has shown us that we do have pressures in our own government, and with financial pressure in our own government and priorities, unfortunately, at that point take over and we haven't historically seen those. So we are working on both fronts. We are asking for both in different ways, but it's not, I don't believe, an unreasonable question or an unreasonable ask.
10:26
David Smith
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David Smith
I suspect it's too early to say, given that the 9% in the Republic just came in. But what would. And maybe this question for all of you, especially Adrian, what would be indicators of success, that there's a direct causal link between the hospitality sector flourishing or improving, or the pressure coming off, and that reduction in the republic? How can what should we be looking for to say that's the cause of a turn around?
10:27
Speaker 5
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Speaker 5
So our indicators would be employment and taxation to the Exchequer in terms of increases and in the in in the sector itself. So since 2011 we saw that our revenues went up in terms of revenue to the to to the tax, to the revenue commissioners because of the benefit of a lower nine lower VAT rate when businesses are more buoyant and their margins increase. And there you don't have as many closures.
The the total economy will will benefit from it. So we have the evidence of that from 2011 onwards where it became cost neutral. You referenced other jurisdictions. The German government initially, sorry, immediately looked at a reduction from 18% down to 7% for food service. And that was to kick start their own domestic economy because they're not a huge tourism destination. But they saw that food service was needed helping hand in terms of survivability.
Other jurisdictions across Europe are in the same boat, and I just wanted to pick up one point, which was raised on the on the multinationals. We had the same debate about multinationals benefiting from the reduction. Many multinationals, including McDonald's, which has been referenced here, McDonald's work off a franchise where a local businessman or woman will buy a franchise, employ people locally in their own community and create jobs for that community using local staff. So we don't see we don't see that as being a hindrance in terms of McDonald's internationally taking the VAT rate.
That's about a business staying open locally and creating jobs in a local area. So that's that's our argument around the international perspective. And it's quite small in terms of the overall number of businesses. The multinationals in the Republic may be different here in the United Kingdom, but in the Republic are quite small in terms of the percentage of multinational businesses.
The the total economy will will benefit from it. So we have the evidence of that from 2011 onwards where it became cost neutral. You referenced other jurisdictions. The German government initially, sorry, immediately looked at a reduction from 18% down to 7% for food service. And that was to kick start their own domestic economy because they're not a huge tourism destination. But they saw that food service was needed helping hand in terms of survivability.
Other jurisdictions across Europe are in the same boat, and I just wanted to pick up one point, which was raised on the on the multinationals. We had the same debate about multinationals benefiting from the reduction. Many multinationals, including McDonald's, which has been referenced here, McDonald's work off a franchise where a local businessman or woman will buy a franchise, employ people locally in their own community and create jobs for that community using local staff. So we don't see we don't see that as being a hindrance in terms of McDonald's internationally taking the VAT rate.
That's about a business staying open locally and creating jobs in a local area. So that's that's our argument around the international perspective. And it's quite small in terms of the overall number of businesses. The multinationals in the Republic may be different here in the United Kingdom, but in the Republic are quite small in terms of the percentage of multinational businesses.
10:29
David Smith
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David Smith
Final question, if I may. I'm an MP in Northumberland and we have about 10.5 million visitors per year. Tourism is worth about 1.3 billion just in the county. It's it's probably our major industry now on top of the normal every day to day hospitality sector, you know, some of the best pubs in the world, I would say. What would you say to the state of say, somewhere in here? I think I'm happy to take you round to my colleagues proved my point, but what would you say to the UK government? About, you know, the implications of a VAT reduction being made in Northern Ireland? I'm slightly you may just say, well, it's not our problem, but I think it's legitimate question because clearly we can see that if.
If a reduction was made UK wide, it would. You know, you're talking you know, tens of billions. What. Maybe a better way to phrase it is what should I say to my constituents, my hospitality sector in Northumberland, about a VAT reduction if it was done just in Northern Ireland?
If a reduction was made UK wide, it would. You know, you're talking you know, tens of billions. What. Maybe a better way to phrase it is what should I say to my constituents, my hospitality sector in Northumberland, about a VAT reduction if it was done just in Northern Ireland?
10:30
Speaker 3
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Speaker 3
Unfortunately, I'll have to disagree with you for a second time about the best pubs in the world, but I think the answer to that, that we would give is we're fully supportive of the That's the Problem campaign, UK wide campaign. We see the benefits of that and we see the needs of that and the pressures exist. Whether you're in Northern Ireland or whether you're on the mainland UK, what we have is we have a unique opportunity to, to, to do a pilot to prove the case, to prove that what we're saying is the case and that it is going to energise the industry, it is going to lead to the growth that we're showing.
Our programme for government is looking for a doubling in tourism spend in the North and without support, without growth, that just simply won't happen. So so we do have a unique case. We have a unique land border. We have a unique jurisdiction in that we're marketed, I think, to use and perhaps to be facetious, to use a direct comparison, it would be a little bit like you having a different tax rate for London and London, doing your marketing for Northumbria, and that is what we're currently dealing with.
We have a totally different tax base, a totally different cost base, and yet we're marketed as one.
Our programme for government is looking for a doubling in tourism spend in the North and without support, without growth, that just simply won't happen. So so we do have a unique case. We have a unique land border. We have a unique jurisdiction in that we're marketed, I think, to use and perhaps to be facetious, to use a direct comparison, it would be a little bit like you having a different tax rate for London and London, doing your marketing for Northumbria, and that is what we're currently dealing with.
We have a totally different tax base, a totally different cost base, and yet we're marketed as one.
10:31
10:31
10:32
Speaker 1
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Speaker 1
So it will probably vary. And the reason for that would be it's going to depend on the main reason that we're suggesting we need the VAT reduction is for the margin. And that margin is to allow us to support the continuation of the jobs. That's about keeping doors open. But obviously someone will be passed on. How businesses pass that on is going to be dependent on every individual business. As I said, we're made up of independents.
It could be to secure volume, it could be to do special offers, it could be to do community led events. That is going to vary. So I don't think we have that percentage. And we have looked at our modelling based on what is proving to be successful in the Republic of Ireland. In that case, it wasn't about passing all the VAT on, and we aren't coming here to say that this is about creating a sale for the consumer.
This is about supporting the business. So it is going to vary and we couldn't give you a final number.
It could be to secure volume, it could be to do special offers, it could be to do community led events. That is going to vary. So I don't think we have that percentage. And we have looked at our modelling based on what is proving to be successful in the Republic of Ireland. In that case, it wasn't about passing all the VAT on, and we aren't coming here to say that this is about creating a sale for the consumer.
This is about supporting the business. So it is going to vary and we couldn't give you a final number.
10:33
Speaker 3
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Speaker 3
No, I mean I agree. I think that again, the notion that this is purely to, to, to provide a sale or a seasonal sale, which I believe was the 5%, the notion behind the 5% reduction in children's experiences and food was, was to, to lower that cost of living pressure over the summer. This is a different argument, and we're coming at it from a different argument that that what we want to see is we want to see local businesses supported, thriving and growing to the benefit of the larger tourism economy.
And that wouldn't lead necessarily to a direct pass through of that fat reduction.
And that wouldn't lead necessarily to a direct pass through of that fat reduction.
10:33
10:33
Speaker 5
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Speaker 5
Well, it was very clear from the government and the Republic that there was no onus on the business to pass through the VAT reduction. This was about, and we made this very clear in our negotiations with the government at the time that this was about survivability. We couldn't pass it on because that means that we still had we're in the drop zone in terms of business closures, of the margins being so low. So the pass through the pass through was not on the table at all for discussion.
10:34
10:34
Speaker 5
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Speaker 5
The initial evidence , and this is based on the the rate was announced in October of 2025. It came in into effect in the 1st of July 2026, since between those two points, we saw an increase in staffing in our industry by 6000 staff from a year before of a 16,000 loss. So before the VAT rate came in, it gave us confidence to the market to say, okay, this is coming down the tracks. Those men and women that own a small business that are suffering from cost inflation, rising costs of their business.
Okay, I'll hold on until I get the VAT rate. I know that's coming in. And also the Irish government made it permanent. It wasn't a temporary VAT rate. It was a permanent VAT rate for the lifetime of the government.
Okay, I'll hold on until I get the VAT rate. I know that's coming in. And also the Irish government made it permanent. It wasn't a temporary VAT rate. It was a permanent VAT rate for the lifetime of the government.
10:35
10:35
Paul Kohler
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Paul Kohler
Yeah. There's there's over ten years of evidence in the South. Are you from your earlier answer, Selena? Has no one done a proper cost benefit analysis? Because every policy person I meet explains why spending money on their sector will make money for the Treasury. Everyone does that. But you've actually we've got very close to us ten years of evidence. There's no one looked at the actual fiscal implications of that.
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Speaker 3
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Speaker 3
No, not in any not in any detail. It is something that we would like to do as something that we have asked for, for support as a small organisation. We wouldn't have the budget to run the level of green paper that would be required to bring that in front of you and provide that evidence. We have asked our local government to support the cost of.
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Chris Bloore
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Chris Bloore
Thank you very much. Colleagues have covered some of the issues around the funding, but I just did. Did you have a specific figure for what you think the pilot would cost in Northern Ireland? I think HMRC have said 10 billion for the UK, but have you costed out how much it would be? And I suppose, given that the corporation tax bid a few years ago, which I have to say I was always a bit skeptical about, but it floundered on Treasury's insistence that it come out of the block.
Grant, have you given any thought to how that might be reconciled?
Grant, have you given any thought to how that might be reconciled?
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Speaker 3
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Speaker 3
The cost at parity would be between 300 and £400 million per year. Staggeringly large number. But in the grand scheme of things, probably similar to the cost of the 5% child summer scheme over that term. So equatable numbers in terms of the block grant, no, it's not something that is in my wheelhouse and I wouldn't be able to comment on, but it's certainly going to be a future stumbling block.
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Chris Bloore
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Chris Bloore
Colleagues have talked about the for example, the issue of the multinationals in in the Republic and the inclusion or otherwise. And and I take your point, that a lot of them are franchised. And Gavin referred to some businesses who would be less exposed to the to the border issue than others. Could I just be clear you're proposing it in a in a blanket way rather than picking or choosing and then I suppose, are there in the in the recesses? Are there businesses, maybe where a hospitality component is part of what they do? Or would it just be anybody who is retailing food, drink or accommodation to the public? Okay, sure.
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Speaker 3
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Speaker 3
Food and drink. Certainly in terms of the the issue around those businesses who are less exposed to the border, I think all of the modelling and all of our thought process at the minute has been about the destination. It's been about Northern Ireland Incorporated and how do we grow that economy, how do we grow the tourism economy for the region and the impact that the the difference in price does have on tour, tour operators, business, large corporates, wedding business.
The impact is felt beyond the border counties.
The impact is felt beyond the border counties.
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Chris Bloore
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Chris Bloore
Yeah. And I suppose a supply chain impact. Well, then, given that we are making the case for this to apply in Northern Ireland as a pilot, how do you explored in the Windsor framework in clause 32? It gives flexibility to the UK government to vary VAT rates specifically for Northern Ireland. Have you have you explored that with the Treasury and the potential use of of that provision?
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Chris Bloore
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Chris Bloore
have, by the way, and but I got the kind of blanket this would be terribly expensive rather than the rationale which I can. I'll share those responses with you rather than the rationale for the application in Northern Ireland. But I suppose it's, it's it's it's a it's about that power existing. And then I don't want to divert. But certainly you did mention the ETAs, and I suppose just one part of the challenging environment for hospitality.
Are you able to give a sense of how that is affecting businesses like yours?
Are you able to give a sense of how that is affecting businesses like yours?
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Speaker 1
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Speaker 1
It definitely does have an impact. And it's a so say it's about £20 per person. You're thinking, well, if you're coming to the island of Ireland anyway, as an extra £20 worth it, there's no physical border that anybody has asked to to show anything. But ultimately businesses and people are concerned about the risk if they travel without one, it does occur. Insurance, if they're in a rental car, still apply if they're coming in a coach.
So we are seeing that certain sort of tour operators, the easiest one to see just because of the scale, they're just changing their routes and cutting out Northern Ireland. They can go into Dublin, spend time on the island of Ireland and never cross into Northern Ireland, and it just avoids the problem. And at £20 a person on a bus there's £1,000. There's. Yeah, multiply that up over all your buses across the year and think of how much that keeps out of our economy.
It's it's it's frustrating. It is a challenge. It's hard to to measure exactly how much of a challenge. But Northern Ireland Tourism Alliance and other bodies have also got some work coming on this.
So we are seeing that certain sort of tour operators, the easiest one to see just because of the scale, they're just changing their routes and cutting out Northern Ireland. They can go into Dublin, spend time on the island of Ireland and never cross into Northern Ireland, and it just avoids the problem. And at £20 a person on a bus there's £1,000. There's. Yeah, multiply that up over all your buses across the year and think of how much that keeps out of our economy.
It's it's it's frustrating. It is a challenge. It's hard to to measure exactly how much of a challenge. But Northern Ireland Tourism Alliance and other bodies have also got some work coming on this.
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Mike Kane
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Mike Kane
Thank you chair. And just building on Claire Hannah's point. Good morning everybody. So the UK government's actual official position is that any VAT cut pilot in Northern Ireland will cause divergence, impact competitiveness and between businesses in Northern Ireland and Great Britain, therefore creating cost and complexity, complexity. I know that you're going to disagree with that, but it might be worth putting on the record exactly why you disagree with the UK government's position currently.
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Speaker 1
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Speaker 1
So firstly, following the Good Friday Agreement, it was agreed that the island of Ireland would be marketed as a whole. That means that Northern Ireland is marketed for mainly and headquartered out of Dublin, and therefore we do operate in different circumstances, so that is a challenge. The other challenge we have is that there already is a disparity between the supports across the different devolved nations, and we don't have the same support on rates, etc., that have been seen in Scotland, Wales and England.
So there is already disparity there. What we are is a small place, you know, 1.4 million people, we're not so big. We can be a test ground. And I think we have a very strong case to be a test ground, given that we have the unique circumstances of having a border with a very different tax regime just beside us.
So there is already disparity there. What we are is a small place, you know, 1.4 million people, we're not so big. We can be a test ground. And I think we have a very strong case to be a test ground, given that we have the unique circumstances of having a border with a very different tax regime just beside us.
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Speaker 3
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Speaker 3
I think also, if I may, to the chair, the importance of tourism to Northern Ireland is also, I think, outweighs any potential negative impact in the size of the industry as a whole and the employment it provides as a proportion of the total employment. It's an incredibly important industry as a whole for us and tourism and hospitality, and it's also a very, very different product. Thank you. Chair.
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Katrina Murray
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Katrina Murray
Thanks, Selena. Michael, want to look at the the review of the 2025 licensing laws that were, was carried out by the Department of Communities in the Assembly around about the surrender principle, which concluded that it stifled competition and caused multiple barriers for entry for new for new venues such as pubs. However, you work as an organisation. Hospitality Ulster welcomed the decision not to proceed with reform. Why is this a good thing for Northern Ireland hospitality industry?
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Speaker 3
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Speaker 3
The . The surrender principle specifically. It's an incredibly complex topic, one that probably couldn't be answered in its entirety here. But what it does provide is it provides the industry with with some, with support, with, with confidence in moving forwards and ensuring that our product is, is, is world class. As we've already discussed, the reducing those barriers to entry at that point, without a proper understanding of what the implications and, and if you've mentioned the Sterling report and if I may, the Sterling report didn't provide any comfort around what those implications would be and the butterfly effect on the entire industry on, on supporting on, on banking and on, on financial supporters.
What would that look like? Because it's an important part and that those, those licenses have traditionally been an important part of our bottom line. So the core argument against it is that the report in and of itself didn't give those answers. And it was very difficult to move forward without understanding what those implications are.
What would that look like? Because it's an important part and that those, those licenses have traditionally been an important part of our bottom line. So the core argument against it is that the report in and of itself didn't give those answers. And it was very difficult to move forward without understanding what those implications are.
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Tonia Antoniazzi
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Tonia Antoniazzi
Would you be able to? If you've got anything, write to the committee at the latest stage. Yeah, thank you very much. Okay. Is there anything else you'd like to add before we conclude? Thank you very much. I would like to thank you very much for your time. Order, order. We're on panel two and we're joined with Gareth Hetherington from Ulster University Economic Policy Centre. Morning, Gareth, how would you assess the financial health of the hospitality sector in Northern Ireland?
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Speaker 7
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Speaker 7
Thank you, chair and good morning, everyone, and thank you also, chair, for for giving me the opportunity to give evidence online today. That flexibility is very much appreciated. I had the benefit of of being able to listen in to, to the previous evidence session. And so quite a lot of it was consistent with, with my understanding of the sector as well. I think when I look at the sector, there's two different stories that are they're telling us they're telling a different tale in terms of overall demand within the sector, demand has held up.
2025 has been a reasonably strong year in terms of overnight trips and and visitor spend. However, that has to be put against the context of 2024 was a per year. And so what we've seen obviously last complete year of data 2025 is more a recovery to where we were in 2023, rather than a continuation of year on year growth. But overall demand is is reasonably strong. And the other part of the story then, which is consistent with with what what you've heard previously is on, on the cost side of the business, the sector has been under, you know, considerable pressure.
I think we we did some research last year for, for, for the Northern Ireland Executive, and it primarily looked at costs around the national Insurance contribution increases in the national living wage increases. And that had an outsized impact in Northern Ireland generally. And it had an outsized impact in the hospitality sector in particular. And and what I what I mean by that
2025 has been a reasonably strong year in terms of overnight trips and and visitor spend. However, that has to be put against the context of 2024 was a per year. And so what we've seen obviously last complete year of data 2025 is more a recovery to where we were in 2023, rather than a continuation of year on year growth. But overall demand is is reasonably strong. And the other part of the story then, which is consistent with with what what you've heard previously is on, on the cost side of the business, the sector has been under, you know, considerable pressure.
I think we we did some research last year for, for, for the Northern Ireland Executive, and it primarily looked at costs around the national Insurance contribution increases in the national living wage increases. And that had an outsized impact in Northern Ireland generally. And it had an outsized impact in the hospitality sector in particular. And and what I what I mean by that
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Speaker 1
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Speaker 1
The the cost of. employing a part time member of staff. Obviously, this will vary depending on their hours, but would increase on average by 14%. Now Northern Ireland for in the first instance has the lowest average wages in the UK, so any increase in wage policy will have an outsized impact on Northern Ireland. But when we look at the. hospitality sector, in. particular .. Entry level minimum wage, part time work, that's that is largely the staffing model.
And so that put. significant cost pressure on the. sector last year. Also in in terms of and I think actually the utility regulator, the utility regulator in Northern Ireland, gave evidence to this committee highlighting higher energy costs in in Northern Ireland relative to other parts of of the UK are . Putting
And so that put. significant cost pressure on the. sector last year. Also in in terms of and I think actually the utility regulator, the utility regulator in Northern Ireland, gave evidence to this committee highlighting higher energy costs in in Northern Ireland relative to other parts of of the UK are . Putting
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Tonia Antoniazzi
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Tonia Antoniazzi
to make it a more. attractive long term career option. And the executive is developing those programs, correct? Yeah. But it seems a shame that, you know, there's, you know, the youth jobs grant is not, you know, it can't be it doesn't exist in Northern Ireland because it's devolved. And that's . £3,000. That hospitality could avail itself of per young person that it takes on that's been unemployed for six months.
So do you feel that the sector has also been impacted . Because
So do you feel that the sector has also been impacted . Because
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Speaker 1
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Speaker 1
10% is. stronger case for Northern Ireland? I think certainly I'm I'm I'm in favour of this as a pilot measure. Now there are a number of of elements that are a number of comments I would make in terms of this being considered as a pilot measure. The first is , I think, and I heard a lot of reasonable challenges from GB MPs on the committee. I think I think they're fair challenges.
What I would say is that Northern Ireland. provides a. It's a unique part of the UK. There's geographic. separation from other parts of the UK that I think. provide the. basis where pilots in general could be applied. Now we're talking about taxation here today, but we could be talking about other public policy measures, such as waiting lists, dealing with the long tail of underachievement in our schools, reducing economic inactivity.
Any pick a problem. I think Northern Ireland, it presents a good test bed for for many of those measures to to be considered, obviously it needs to be agreed. between the UK government and the executive so that. That would be the first point that I would make. I think also in terms of a pilot, it would need to be for a reasonable period of time, 4 to 5 years minimum. And the reason I say that if it was shorter.
I suppose, what what what's the objective? Sorry. Let's take a step back. What's the objective of a lower. VAT rate? And from my. perspective as an.
What I would say is that Northern Ireland. provides a. It's a unique part of the UK. There's geographic. separation from other parts of the UK that I think. provide the. basis where pilots in general could be applied. Now we're talking about taxation here today, but we could be talking about other public policy measures, such as waiting lists, dealing with the long tail of underachievement in our schools, reducing economic inactivity.
Any pick a problem. I think Northern Ireland, it presents a good test bed for for many of those measures to to be considered, obviously it needs to be agreed. between the UK government and the executive so that. That would be the first point that I would make. I think also in terms of a pilot, it would need to be for a reasonable period of time, 4 to 5 years minimum. And the reason I say that if it was shorter.
I suppose, what what what's the objective? Sorry. Let's take a step back. What's the objective of a lower. VAT rate? And from my. perspective as an.
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Tonia Antoniazzi
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Tonia Antoniazzi
For to allow businesses to, to make those longer term decisions. And you have outlined, you know, the cost of doing business has changed for the hospitality sector over the past few years in Northern Ireland, and you've done that really well. And, you know, it's increased national insurance contributions, energy costs, minimum wage. And your analysis found that the hospitality sector was likely to be one of the most affected.
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Speaker 1
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Speaker 1
Why is that sector the most affected? It's certainly one of the most effective because it has a higher proportion of low paid people, low paid staff and social care, for example, would be another sector that's very significantly impacted. But what we have seen when we look at wage growth over the. last sort of. 4 or 5 years, is that there's been a significant, particularly when the living wage was. introduced lower that that.
bottom decile, bottom. quartile of the earnings distribution has increased at a faster pace than than median wages. And so therefore, if you have a sector that is weighted. towards staff on lower earnings, then that increase clearly it's good for staff. But that has a cost bearing .
bottom decile, bottom. quartile of the earnings distribution has increased at a faster pace than than median wages. And so therefore, if you have a sector that is weighted. towards staff on lower earnings, then that increase clearly it's good for staff. But that has a cost bearing .
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Speaker 1
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Speaker 1
Particularly during the pandemic and the emergency. circumstances that that all businesses face, then that that would happen. It's not clear. Certainly listening to to the panel before that, an outworking of this would be a lower, lower prices for consumers. So therefore, what would it be? And for me, what I would want to see is an enhanced tourism product and . Greater
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Gavin Robinson
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Gavin Robinson
levels of investment. With that additional funding, you are right to highlight that there have been or there was a discussion earlier about some of the reflections that you might get from elsewhere in Great Britain around this. So these questions are now about sort of compare and. contrast the economic situation that a hospitality business faces in Northern Ireland compared to that in England, Scotland or Wales . Are the
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Speaker 1
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Speaker 1
Less than what comparable businesses in Northern Ireland pay? So any of the analysis that we carried out did not look. specifically at what that grant, what that would or relief, what that would bring from a comparative point of view, equivalent hotels, I think it probably varies across different parts of England, different parts of the UK. So there's a member from Northumberland on, on the on the on the committee. I suspect rates for a Northumberland hotel is probably lower than rates for a London city .
Centre
Centre
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Gavin Robinson
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Gavin Robinson
hotel. So I haven't carried. But we didn't look at that analysis. Okay. And then I guess if you listen to the earlier session, you will have picked up the. frustration from Hospitality Ulster that they've engaged with the Minister. They've indicated to the Minister they were talking of skills and this occasion they were asking for comparable support and the skills fair. And of course, this rates applies to the Department of Finance.
John O'Dowd is the minister there. Do you know what the value of the rates relief .
John O'Dowd is the minister there. Do you know what the value of the rates relief .
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Speaker 1
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Speaker 1
the impact of any VAT reductions. So it's certainly, I think what what it does, the lower VAT rate. creates a more. competitive tax. environment in the South than than is faced in the North. That will have a greater impact. obviously . in , in border regions. And I suppose another important point that I that I would make in this regard, we have to we have to remember that most.
international visitors into Northern Ireland. arrive on the island in the South. primarily in in Dublin airport. So you have.
international visitors into Northern Ireland. arrive on the island in the South. primarily in in Dublin airport. So you have.
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Speaker 1
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Speaker 1
On the island in the more in. In a competitor jurisdiction with a more. advantageous tax environment. And so the. gatekeeper for a lot of Northern Ireland tourists of of an international nature is also the more tax advantageous region. So I think that that is is an important aspect that that. perhaps hasn't come out in the debate thus far. And that will not I mean, the. individual tourist will not.
necessarily be thinking about VAT.
necessarily be thinking about VAT.
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Speaker 1
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Speaker 1
But the tour operators will be. And those. prices and. costs are a factor. Now, it's. important in terms of and certainly consistent with anything that I have read. But certainly the evidence that came through before was that the VAT reduction in the South is the level of pass through there. It will, in terms of prices, will be limited. So what then is going to happen to the money? Well, to go back to the previous point I made, I think what we could see in the medium to longer term is an enhanced tourism .
Offering
Offering
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Speaker 4
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Speaker 4
South, because they have greater funds to invest with greater margin. Okay. And and it also. among among those many factors is the, is the ETA issue that that Selena raised two other quick questions for me. I had asked. Hospitality Ulster about. whether they would propose a blanket application across their sector. Do you think there's any case for, you know, calibrating it or targeting certain parts of the .
Hospitality
Hospitality
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Speaker 1
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Speaker 1
I think would, would is probably the best way of describing it. And why whenever you're starting to target. particular parts of a sector, they're drawing and scoping. That becomes quite a complex task. And I suppose I would I would take a step. I'm not suggesting you're saying this, Miss Hannah, but in there is a general sense small is good, big is bad. And I, I would step back from that.
And as the. The Restaurant Association from Ireland. representative made made clear large international. businesses employ local people and we want to. In Northern Ireland and more generally, we want to encourage greater levels of of inward. investment and what we do not want is to be. creating an. environment that is, I suppose, more. disadvantageous for what . Would be
And as the. The Restaurant Association from Ireland. representative made made clear large international. businesses employ local people and we want to. In Northern Ireland and more generally, we want to encourage greater levels of of inward. investment and what we do not want is to be. creating an. environment that is, I suppose, more. disadvantageous for what . Would be
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Speaker 4
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Speaker 4
Associated with that as well, which needs to be considered. Yeah. My understanding is most of ours in terms of the multinationals are. franchises anyway. It doesn't all go directly to Ronald McDonald, but it probably makes a fair few quid as well. I'd also ask them about a mechanism in the Windsor framework that allows the UK government to vary VAT rates for Northern Ireland for competitive reasons. Is that something you have.
explored or. I suppose that is a political and a legal judgment rather than. necessarily an economic one, but . Is that
explored or. I suppose that is a political and a legal judgment rather than. necessarily an economic one, but . Is that
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Speaker 1
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Speaker 1
The only, the high level analysis of the results of the. analysis is, is produced. So I mean, like. anything what I would say and, and this is the difficult part, whether it's whether you work in Treasury or, or outside Treasury is making an estimate of the behavioural change that will be associated. So you can quite.
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Speaker 1
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Speaker 1
Relatively speaking, determine, well, here's the VAT rate from the hospitality sector. Let's call it 20 billion. Therefore, if we cut it in half it'll be 10 billion. You could do. But then, well, if we cut VAT in half, what changes. So what the businesses do differently and what the consumers do differently. And and I think that it is. understanding that. behavioural change is, is, is the difficult piece in, in all of this analysis, which goes to, well, let's look, let's do a pilot in a relatively small part of the UK,
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Speaker 1
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Speaker 1
Well, I think that it's. There are a number of different. The. So the UK operates as a single U tax regime. So there are a wide range of different. fiscal policies in place in the Republic of Ireland Corporation tax being probably one of the most high profile ones. So the impact in the Republic of Ireland, whilst. informative and.
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Speaker 1
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Speaker 1
That there will be an overall economic benefit as a as a result of that. So if and that goes back to my point. previously about, well, are we going to see prices fall as a result, or would we see prices fall? Probably not. Or fairly limited pass through, or are we going to see increased levels of investment? And in either of those two.
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Speaker 1
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Speaker 1
I think there is an economic benefit to associated with that. And so therefore, I would be I would certainly be. supportive of further analysis to be able to make that determination. Because as you're finding out as a committee, the level of detailed. analysis is an evidence is limited. And, and I think it's not for me to prejudge an outcome of this, this committee.
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Paul Kohler
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Paul Kohler
The big, big. organizations who work on fixed. margins that they most certainly will. They have the power, they have the market potential to to maintain those fixed margins. And therefore, they might well put the reduction through , whilst smaller employers with very different economic models wouldn't did that. Is that a . Fair
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