Hospitality Sector VAT: Local Economies, Employment and Growth

Steve Darling Excerpts

Thursday 12th November 2026 Westminster Hall

[Steve Darling (Torbay) (LD)]

It is a pleasure to serve under your chairmanship, Dr Huq. I congratulate the hon. Member for Blackpool South (Chris Webb) on obtaining this important debate. As somebody who was brought up in a guest house, this subject is in my DNA. In fact, as a three and four-year-old, I used to really enjoy sitting with the guests for their evening meals. That used to annoy my father massively, so he would drag me out from among the guests. One time, my sandal fell off into the soup and splashed everyone—I assure Members that our B&B model was not completely modelled on “Fawlty Towers”. Although that is a little bit of fun, the reality is that our hospitality industry faces a challenging world.

[Vikki Slade (Mid Dorset and North Poole) (LD)]

While we are talking about incredible hotels, I am privileged to have the Priory hotel in Wareham. However, it does not qualify for either the small business rate relief or the pub relief, because it is an award-winning hotel with 17 bedrooms and a Michelin key. Its rates have gone through the roof, yet it does not qualify for anything. Does my hon. Friend agree that hotels are vital to our small towns, particularly those on the south coast, and that the rest of our hospitality industry will really struggle if we do not look after them?

[Steve Darling]

My hon. Friend makes a powerful point, and I will come on to some of those challenges. As has been alluded to, one significant challenge is the fact that some of our major competitors in the tourism and hospitality industry, such as Spain, France and Italy, pay only 10%. Those of us who have recently had the pleasure of going on holiday abroad will have seen the real difference in what we are paying for a meal out, and that will affect where people choose to go on holiday.

Something that has affected all of us in western Europe is the massive increase in utility bills following the war in Ukraine. However, other countries in Europe will not have been impacted by the Employment Rights Act, and they will not have had the national insurance hikes impacting on their ability to employ. On viability, I am only too aware of one restaurant in Torquay that has a profit margin of only 4%, so the continued pressures on their world are significant.

Hon. Members have done incredible work in highlighting challenges in their own constituencies, but one issue that has not been raised is the cost of online travel agencies, which is something that I only recently became aware of. It is almost a given that hotels and B&Bs will advertise on Booking.com, because it is how they reach out to the market and land new people in their accommodation. However, the online agency takes a minimum 15% slice out of the pie of their booking, and it will not stomach covering the costs of this VAT policy, which only enhances those costs for the overnight accommodation provider.

The Government need to be alive to these issues when they look at bringing in new charges, such as the overnight visitor levy, which could be the straw that breaks the camel’s back for many of these industries. Another issue that has been raised—I must admit it is what I have heard from my hospitality industry—is that it was too complex to do the reduction in VAT for youngsters over the summer; it was a massive challenge.

I want to talk about the impact of this VAT policy. Whitbread is a big player in this sector, and in April it announced 3,800 job cuts across the United Kingdom, with its Brewers Fayres and Beefeaters closing. Just in my patch of Torbay, we have had three of its offers close and dozens of people lose their jobs. Tim Rew from the Livermead House hotel shared with me that he has had to let five members of staff go, as he has had to make £180,000-worth of savings in recent months because of the continued pressure. He sees these workers as being sacrificed on the altar of bigotry against business. He has some real challenges there, as do many up and down the United Kingdom.

The Liberal Democrats see the cut from 20% to 15% for a time-bound period as an opportunity to give a boost to our hospitality industry. That could be achieved through an additional levy on the banks where they are making additional unforeseen profits. We also believe that there should be limited cuts to the national insurance hikes that we have seen, which could help get young people into employment, because there have been 100,000 job losses in the hospitality industry.

I would welcome the Minister’s reflections on a time-limited cut to VAT, as hon. Members have already asked for. I also ask whether the Minister has undertaken any review of the VAT reduction over the summer and its negative or positive impact, and whether there are opportunities to expand on that with similar cuts, but in a more profound way for the industry.