Hospitality Sector VAT: Local Economies, Employment and Growth

James Murray Excerpts

Thursday 12th November 2026 Westminster Hall

[The Financial Secretary to the Treasury and Paymaster General (James Murray)]

It is a pleasure to respond to the debate with you in the Chair, Dr Huq. I thank my hon. Friend the Member for Blackpool South (Chris Webb) for securing this important debate and my hon. Friend the Member for Gower (Tonia Antoniazzi) for opening it.

My hon. Friend the Member for Blackpool South has been a strong advocate for the hospitality and tourism sectors. The strength of his advocacy is recognised in all parts of the House, although I appreciate that he might not reproduce the specific terms of endorsement offered by the Opposition Front Bencher, the hon. Member for Grantham and Bourne (Gareth Davies). My hon. Friend’s work—in his constituency championing Blackpool, and in his role as chair of the all-party parliamentary group for hospitality and tourism—is widely recognised in the House and he deserves that recognition.

All Members who contributed spoke passionately about their support for hospitality and the importance of such venues in all our constituencies. We all feel close to and supportive of the pubs, restaurants, cafés and other hospitality venues that give our areas their distinctive character and, of course, provide jobs. Many of us have worked in hospitality at different times in our lives. My hon. Friend the Member for Stroud (Dr Opher) said that many people have their first jobs in hospitality. Actually, my second job was in hospitality—my first was in retail—but I am glad to be part of the club, I hope, for where we started out. Learning the important skills in the workplace, earning money, going to work, developing social skills and contributing to the local economy are all so important for young people and, indeed, people of all ages.

Our hospitality venues provide employment opportunities. They support our high streets and town centres with their vitality. They are integral to tourism and the visitor economy. Most importantly, they provide spaces where people come together. The shadow Minister said that those are the places where we all spend our spare time. I think that the role they play in all our lives, irrespective of our political differences on how we support them, is something we can agree on firmly.

[Vikki Slade]

I am excited that Wimborne in my constituency has today been named as a finalist in the Let’s Celebrate Towns competition. What makes it such a special town, however, is the places within it, whether the cafés, the restaurants, the museums or the theatre—all those things. My big concern is that, while I welcome the shift on the small business rate relief that was announced at the Budget, it does not help places in the south, where most of our businesses have business rates of £20,000, £25,000 or £30,000, whereas hospitality relief on VAT would benefit every business, whether in Wimborne or Wimbledon, in a fair and transparent way. Will the Minister go back to the Treasury and think about that again? That is a consistent message from across the sector.

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[James Murray]

The increase in the small business rates relief threshold takes about 70,000 businesses in retail, hospitality and leisure out of business rates altogether and it is just one part of the support for the RHL sector. Alongside that, the 20% cut to business rates for pubs, I am sure will benefit some pubs—

[Vikki Slade]

indicated dissent.

[James Murray]

The hon. Lady is shaking her head, implying that no pubs in her constituency benefit from that. I will happily check and get back to her to confirm that the 20% cut does apply in her constituency. Also, more widely, we are having a real-terms freeze for all business rates for retail, hospitality and leisure. I think it is clear that retail, hospitality and leisure properties of all sizes benefit from a real-terms freeze, a cut or being taken out altogether.

Businesses in the sector have had to contend with a number of challenges in recent years, including higher operating costs. Members have spoken about the impact that that has had. The Government take those concerns seriously. We continue to engage with the sector about what support we can give.

A number of Members have made the case for reducing the current rate of VAT to 10%, and we have considered that case carefully. Let me be clear that we recognise that reducing the rate of VAT would provide a benefit to affected hospitality businesses. Businesses would make their own decisions about how to use that benefit: whether to strengthen their finances, support employment and investment, or reduce prices for customers. As the Minister responsible for the tax system, I have to consider the significant fiscal implications that such a change would have.

[Monica Harding (Esher and Walton) (LD)]

The Minister talks about reducing prices for customers, yet a Michelin-starred restaurant in my constituency, Starling, cannot pass those costs on to customers because they cannot pay it, and it cannot keep up with the rising costs. The Good Earth, which I think many people will be familiar with, have seven sites throughout London and the south-east; they have lost the opportunity to expand, they are reviewing locations and looking at their employment practices. That is without mentioning the pubs that are struggling to survive, which is completely heartbreaking. Does the Minister agree that not enough is being done to save these restaurants that are so much part of our high streets?

[James Murray]

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

[Seamus Logan]

Will the Minister give way?

[James Murray]

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

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

[Seamus Logan]

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

[James Murray]

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

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

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

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

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

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

[Dr Rupa Huq (in the Chair)]

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

[James Murray]

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

[Alex McIntyre]

Given that we provide some carve-outs for retail, hospitality and leisure businesses on business rates, will there be scope in future for expanding employment allowance for those businesses to allow them to take on more people before they incur national insurance contributions?

[James Murray]

The Chancellor takes decisions on fiscal policy at fiscal events, as my hon. Friend will know, but the employment allowance increase applies broadly across different sectors and parts of the economy, and sits alongside other reliefs in the tax system. I think that this will be of interest to him, given that he asked specifically about helping young people into work. The Government are protecting employer national insurance relief for all employees under the age of 21 and apprentices up to the age of 25. More recently, we have secured a commitment from the hospitality sector to create more than 100,000 opportunities for young people who are not in education, employment or training. That response from industry sits alongside the Government’s work through the youth guarantee and our reforms in respect of skills and employment support.

I might briefly address some other points from hon. Members. Some Members referred to the impacts of energy costs on hospitality businesses, and we recognise the impact that global events beyond our control are having on the costs of running a business in the UK. As all Members will have seen in the Budget two weeks ago, the Chancellor and the Government are taking that very seriously and starting the longer-term reforms needed to make the energy system fairer, cheaper and easier for businesses. That includes action to control new policy costs, reform energy institutions and improve access to grid connections.

Some hon. Members asked about the UK’s treatment of hospitality, compared with what happens among EU countries. A number of European countries do apply reduced rates to hospitality. France and Italy apply rates of 10%, Germany applies a rate of 7% and Ireland applies a rate of 9% for most hospitality supplies. But different countries make different choices about the balance of taxation and expenditure. The UK’s standard VAT rate is close to the OECD average and, as I set out earlier in my remarks, VAT is only one element of the business environment—it sits alongside business rates, which I have set out—and should not be considered in isolation.

[Graham Leadbitter]

I appreciate all the different taxes and all the different aspects that the Minister is juggling, but given that the now First Lord of the Treasury has said as recently as this year that he supports this proposal, is it not just a matter of time?

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[James Murray]

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

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

[Dr Rupa Huq (in the Chair)]

Order.

Question put and agreed to.

Resolved,

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