If VAT Dropped to 10%: What Would Actually Happen

These are our personal thoughts on the likely outcome. We are not economists, and we are not pretending to be. But we have run kitchens, watched the numbers, and seen what happens when the margin disappears. So here is our honest read of what a reduction to 10% would probably do.

Tom Kerridge deserves real credit for putting his name and his weight behind the #VATsTheProblem campaign. It is not always comfortable for someone in his position to wade into political territory, and the fact that he has done so, clearly and publicly, matters. The campaign is asking the government to cut hospitality VAT from 20% to 10%. You can read the full case and sign the petition at vatstheproblem.co.uk.

We wrote about the campaign and the case for change in our last post. What we want to do here is think through the next question: if the reduction actually happened, what would it look like in practice? This is speculation. We have no particular insight into Treasury thinking, and we are not claiming to predict anything with certainty. But we have spent enough time in this industry to have a view on where the money would go and where it probably would not.

The relief would be real, but not dramatic

On a £50 meal, the VAT liability at 20% is £8.33. At 10%, it drops to £4.17. That is roughly £4 per cover. Applied across a year, across hundreds of covers a week, it adds up quickly. For a small independent doing three hundred covers on a good week, you are looking at something in the region of £60,000 freed up over twelve months. That is not a windfall. But it is the difference between a business that survives and one that does not.

The venues that would benefit most are not the big groups, who can absorb current rates through volume. They are the mid-market restaurants, the community pubs, the neighbourhood cafés. These are the places closing. A 10% rate would, for many of them, be the margin that keeps the lights on.

Prices would not fall dramatically

Anyone hoping for noticeably cheaper restaurant bills would, in most cases, be disappointed. The industry has spent three years absorbing extraordinary cost inflation. Energy, food, wages, and business rates: all of it has risen significantly, and most of it has not come back down. A VAT cut would not reverse that. What it would do is stop operators having to pass the next wave of cost increases quite so immediately to the customer.

Think of it less as a price reduction and more as a pressure valve. The room it creates would, for most sensible operators, go back into stability rather than into cutting menu prices. That is not greed. That is what a business with no reserves does when it finally gets a little headroom.

The honest complication

We should say this plainly: not every operator would use the relief wisely. Some would simply widen their margin without reinvesting in prices, staff, or quality. That is the criticism sometimes levelled at VAT reductions, that the benefit flows upward and the customer sees nothing.

There is something in that. But it does not hold up as a reason to keep the rate where it is. The answer to a few operators making poor decisions is not to deny the entire sector the oxygen it needs. And in practice, hospitality is a fiercely competitive environment. An operator who pockets the saving entirely will, over time, lose ground to the one who used it to improve their offer. Competition does a reasonable amount of the work here.

The jobs picture

A hundred thousand jobs have left this sector in the last two years. A VAT reduction would not bring those people back overnight, and it would not reopen a pub that closed six months ago. That damage is done. But it would slow the rate of further losses, and it would give surviving businesses the headroom to take staff on rather than grinding a reduced team into the ground to cover what they can no longer afford to hire properly.

The long-term jobs story is the most important argument for the cut, and it is the one that gets talked about least. People focus on whether restaurant bills will change. The more significant question is whether the businesses employing those people will still exist in three years.

What France, Spain, and Germany have actually shown

The European comparisons are real. France and Spain operate at 10%. Germany at 7%. Italy at 10%. These countries do not have dramatically cheaper restaurants as a result. What they have is a hospitality sector that is not constantly haemorrhaging venues and jobs at the rate ours is. The lower rate has not been a miracle. It has been a structural foundation. That is all anyone is asking for here.

The realistic version of what happens

Our honest read, for what it is worth, is this. A reduction to 10% would not transform the industry overnight, and it would not undo three years of accumulated damage. What it would do is give the sector a fighting chance to stabilise. Venues that are currently just holding on would have more room to breathe. Investment decisions that have been deferred would become possible again. The operators most likely to close in the next eighteen months would, in a meaningful number of cases, not close.

Over three to five years, the effect compounds. More businesses survive. More staff are employed. More communities keep their local pub, their neighbourhood restaurant, and their Saturday morning café. The benefit does not show up in a single headline. It shows up in the things that did not disappear.

That is worth fighting for. Sign the petition at vatstheproblem.co.uk, share it with your teams, your regulars, and anyone else who has eaten in a restaurant or had a pint at a local pub. And thank Tom Kerridge for having the gumption to lead it.

Ian McAndrew & Shaun Smith-Roberts
chefs.studio