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09-06-2011, 11:24
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It has been suggested that a lower VAT rate of 5% should be introduced for sales of food and drink in pubs and restaurants to give a boost to the “hospitality trade”. Apparently an experiment along these lines has already proved successful in France. It is certainly true that, if you wanted to improve the relative position of the on-trade, cutting VAT is a much better way of doing it than cutting alcohol duty, as VAT applies to the total sale price, not just the cost of supplies brought in.

However, I have to say that on principle I can’t really support this, as I don’t believe government should be giving out special tax treatment simply on the grounds that it’s for “something we like”. It is not the role of government to make value judgments between different types of business. Anyone remember Selective Employment Tax? If a business sector is in overall decline, then all a tax break is likely to do is postpone the evil day. (The argument for tax concessions for small and start-up businesses is an entirely different one).

And surely the biggest beneficiaries of such a move would not be community pubs and real ale, but McDonalds and Stella. Are cafés and restaurants doing so badly at present that they are in need of a shot in the arm anyway?

Given the current anti-drink climate in government, does anyone seriously think there is a cat in hell’s chance of a lower VAT rate being introduced for on-trade alcoholic drinks? On the other hand, if the reduction only applied to food and soft drinks, then that would effectively give restaurants and cafés a boost at the expense of pubs as a higher proportion of their turnover would benefit.

Not to mention, of course, the dire state of the public finances overall which means that any kind of cut in VAT in the next few years is simply not going to happen. At times a reality check is needed as to what changes in government policy are actually remotely achievable.

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