One of Scotland’s best-known restaurateurs has warned that the costs facing the industry are “not sustainable” as he threw his weight behind a major campaign to cut value-added tax for the hospitality sector.
Tom Kitchin, who co-owns Michelin-starred restaurant The Kitchin in Leith and The Scran & Scallie in Stockbridge, declared there was currently “no way of making money” for many operators given the heavy cost burden that the industry is now saddled with.
The high-profile chef is among more than 100 Scottish hospitality chefs and hospitality operators urging First Minister John Swinney to help stem the tide of business closures and job losses by backing the campaign.
In an open letter from the industry, Mr Swinney has been urged to show his support for #VATsTheProblem, which is calling on the UK Government to reduce VAT to 10% at the Budget next month to bring it in line with the European average.
The campaign had its formal launch in Glasgow yesterday and has the support of some of the biggest names in the Scottish hospitality sector – including luxury destinations such as Cameron House on Loch Lomond, The Torridon in the Highlands and the Andy Murray-owned Cromlix Hotel by Dunblane.
Major pub and restaurant groups across Scotland are also backing the campaign, including The DRG (formerly known as the Di Maggio’s Restaurant Group), Signature Pubs, Glendola Leisure, Greene King, Mitchells and Butlers, and Punch Pubs & Co.
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So far more than 380,000 members of the public have signed a petition in support of the campaign, which has been spearheaded by celebrity chef Tom Kerridge, since it launched in the summer.
Asked what impact a VAT cut to 10% from the current 20% would mean for the industry, Mr Kitchin told The Herald: “It just allows the business to operate. There is no profit at all just now. There is no way of making money – you are losing money basically. Edinburgh, for example, is busy in the summer with the tourists coming out. But as soon as the tourists go, you're back to the local [market]. Everyone is suffering with money; we can only put our prices up so much.
“And we are not employing. We are not growing the business because we are trying to slimline costs as much as we can.”
In the letter to Mr Swinney, the industry notes that the tax burden it faces is “among the highest in the economy”, and declares that it is “causing business closures, lost jobs and harm to our communities, which are losing their much-loved local venues”.
Industry figures say the rate of VAT in the UK is significantly higher than in many other European nations. The VAT rate in Ireland was recently cut to 9% for restaurants and cafes, while in Germany it has been reduced to 7% for the hospitality sector.
Industry figures here say that the high level of VAT compounds the hikes in employer national insurance contributions and minimum wage which the UK Government has imposed after Labour coming to power in 2024, as well as pressure from energy and ingredients prices.
Asked if his workforce was now smaller than it was in the past because of rising costs, Mr Kitchin said: “Absolutely we are slimmer, and we are not employing as many people as we want to employ because obviously wages are a huge part of the DNA of the business. But if we can just get the VAT cut by the 10%, it allows us to grow, [be] prosperous and take things on and stop putting the prices up. The only way we can recoup [costs] is by putting the prices up.”
Mr Kitchin added that, across Europe where the level of VAT ranges from 7% to 10%, “businesses are thriving”. He said: “People are going out [and] enjoying [themselves], and businesses can employ [more people] and improve as well. That is where we are trying to get to. We want to get back to a good level playing field. Just now we are just being hammered - every Budget is just tax, tax, tax. If you go to Marks & Spencer and buy a ready meal there is no VAT on that. The VAT that we pay is just unfair.”
Terry Dourish, finance director at The DRG, told The Herald that a VAT cut would “give you time to breathe, that would be the big thing”.
“We are looking at a point just now where the P&L (profit and loss) just doesn’t work anymore,” he said. “Post-Covid, wage inflation, the national insurance changes, business rates, inflation in terms of food [costs], just means that the P&L just doesn’t work anymore. We are looking at a number of investment appraisals at the moment on potential new sites, and you are pausing all of that investment because you just can’t make those numbers stack up.
“A cut in VAT would allow us a bit of breathing time. It would also allow us time to structurally fix the P&L again and not have to pass all of that cost on to customers.”
Previous calls for VAT to be reduced in the sector, which have attracted support from a raft of major companies, have been unsuccessful.
Asked why he believes there is a strong case to be put to the UK Government for a VAT cut at this juncture, Mr Kitchin said: “There are three businesses closing a day just now. We are just asking for a level playing field.”
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