Where things stand
The standard rate of VAT stays at 20% for 2027/28, and the registration threshold stays at £90,000. The 28 October Budget didn’t include the cut the trade had campaigned for.
UKHospitality’s main Budget ask was to cut VAT to 10% for hospitality. It argued that this would bring the UK closer to its international competitors and give businesses “the headroom to invest, create jobs and keep prices down”. The BII backed it too. Its chief executive, Steve Alton, said after the Budget that bringing VAT “in line with other European countries” was “the simplest and most impactful step”. UKHospitality’s Allen Simpson said: “We must carry on going to win the VAT cut we so badly need.”
The case for
Operators say they’d reinvest it. In a survey by the trade bodies in February, carried out by CGA by NIQ with operators of more than 20,000 sites, 89% backed a VAT reduction. Asked what they’d prioritise if their tax burden came down, 70% said refurbishing and developing existing sites, 46% said creating new jobs and 27% said opening new sites.
The campaign’s own modelling says it pays for itself over time. UKHospitality’s published case draws on a study commissioned by the Cut Tourism & Hospitality VAT campaign. That study estimated 182,400 jobs over five years, £7.7bn of extra sector sales over ten years and a net gain to the Treasury of £4.6bn over ten years. Two caveats. That modelling was for a 12.5% rate, not 10%, and it was commissioned by campaigners.
The jobs need is real. UKHospitality says nearly 100,000 hospitality jobs have gone in the past two years, and calls hospitality the biggest employer of young people.
The case against, or at least for caution
The cost is large. In March, the Treasury minister Lord Livermore said HMRC estimates that cutting VAT to 10% on all accommodation and food and beverage services would cost £10.5bn in 2026/27. Any Chancellor has to find that money somewhere else.
Customers may not see much of it. From July 2020, the UK temporarily cut VAT on hospitality food, soft drinks and accommodation to 5%, before restoring it in stages by April 2022. Alcohol wasn’t included. The evidence on what happened to prices is not encouraging for anyone hoping for cheaper menus:
- The ONS found the fall in consumer price inflation in August 2020 came mostly from Eat Out to Help Out, “with only a small proportion coming from restaurants passing on savings from the lower rate of VAT”.
- A 2026 study of more than 540,000 ONS price quotes found the 2020 cut passed through to prices only weakly, and full pass-through was rejected every time. The later VAT rises came through more clearly, at about 28% and 26%. It also found pass-through was higher for chains than for independents.
- At the time, a survey reported by The Morning Advertiser found 84% of 163 pubs said they wouldn’t be cutting prices.
Does “disappearing” mean wasted?
This is where the two sides talk past each other. If a VAT cut doesn’t lower prices, the money doesn’t vanish. It stays in the business. In 2020 that meant survival. In 2027 it might mean repairing margins, paying wage rises or putting off a price increase. That’s the campaign’s point: the cut buys “headroom”, not necessarily a cheaper pint.
The honest answer to the question in the headline is that it depends on what you want the cut to do. If the aim is lower prices for customers, the 2020 evidence suggests most of the saving wouldn’t reach them. If the aim is to keep viable pubs open and staffed, a cut that mostly stays in the business may be doing exactly what the trade asked for. Whether that’s worth £10.5bn of public money is a political judgement, and one this government hasn’t been willing to make.
Two things to bear in mind
- Wet sales. The 2020 cut didn’t apply to alcohol. Whether any future cut would is up to the Chancellor. It’s worth knowing which version the campaigns are asking for before you sign up to the argument.
- Plan on 20%. There’s no announced change, so price and budget on the current rate.
Our take
The case for a hospitality VAT cut is strongest when it’s argued as what it is: support for viable businesses carrying a heavy tax load. It’s weakest when it’s sold as a promise of cheaper food and drink, because the evidence from the last cut doesn’t back that up.
Sources (10)
- Budget 2026, Annex A: rates and allowances, GOV.UK, 28 Oct 2026
- #Budget26: backing hospitality to deliver growth, UKHospitality
- BII members disappointed as budget fails to deliver, BII, 28 Oct 2026
- April cost increases will force two-thirds of hospitality to cut more jobs, UKHospitality, 2026
- The impact of a reduced rate of VAT for the hospitality sector (PDF), Cut Tourism & Hospitality VAT campaign paper hosted by UKHospitality, Sept 2023
- Written question HL14744: VAT on hospitality, UK Parliament, answered 9 Mar 2026
- VAT: reduced rate for hospitality, holiday accommodation and attractions, GOV.UK
- Prices economic analysis, quarterly: October 2020, Office for National Statistics, Oct 2020
- Temporary VAT changes and consumer price pass-through: evidence from UK catering, Applied Economics (Taylor & Francis), 2026
- Pubs refusing to pass on VAT cut, survey suggests, The Telegraph, 26 Jul 2020