The Rate That Did Not Reach the Plate
From this morning, domestic electricity in Great Britain is zero-rated for VAT. The rate dropped from 5 percent to nothing, a temporary measure running until the end of March. For a household on an average bill, the saving across those six months comes to around £45. It is not a transformative number. But the mechanism is entirely real: the government identified a VAT rate it wanted to change, built the legislation, and changed it.
The hospitality sector has been watching this kind of move for several years now.
What 20 percent does to a kitchen
At 20 percent, VAT on food served in a restaurant, pub or hotel is one of the first costs the business absorbs before it gets anywhere near margin. It runs at the same rate regardless of what the kitchen earns that evening, how the room traded last week, or whether the booking arrived or did not.
The arithmetic is not complicated. A main course that sells for £14 generates £2.33 in VAT before anything else is touched. Layer wages on top of that. Wages went up in April. Energy sits where it sits, and that bill is not on the zero-rate list from today. Food inflation has been running for two years. Rent does not move for a good Friday.
Stack it up and a single-digit net margin is the reward for a well-run kitchen. Most kitchens in the UK are well-run. The margin is still what it is.
France, Italy and Spain all levy around 10 percent on hospitality meals. Germany charges 7. The UK charges 20. Same rate as a television. The sector has been pointing this out, loudly and in letters signed by over 800 operators, for long enough that the logic requires no further repetition.
The rate the government decided to move
Today's cut on domestic electricity is worth noting less for its size and more for what it demonstrates. A VAT rate the government wanted to move was moved. The mechanism exists. The political will, when present, is sufficient to act quickly.
Hospitality has a larger employment footprint than residential electricity supply. The sector employs around 3.5 million people across the UK. UKHospitality's count for this year runs at three closures a day since January. More than 6,000 venues have closed across the UK in the past 18 months. These are not numbers from a sector that is doing fine and asking for a favour. They are numbers from a sector running out of road.
The rate that moved this morning was 5 percent. The rate on the kitchen is 20.
What the Budget has 27 days to answer
October 28 is the Autumn Budget. It is 27 days away. More than 800 operators put their names to an open letter asking the Prime Minister to honour a commitment he made before he took office: a permanent reduction in hospitality VAT from 20 percent to 10.
What the Budget answers on October 29 will be the difference between a structural change in the economics of the sector and another deferral. The case has not grown weaker since the last time it was made. The number of venues still open to benefit from a rate cut is smaller than it was.
We run kitchens across Sussex: the Castle Inn, Tollgate, the Bull on the Green, the Berwick, Ash and Honey. The electricity bill changed this morning. The VAT on the food we serve did not.
The seat available tonight
Around 4pm, when the shape of the evening becomes clear, venues release on Halfseat the tables they expect to lose. Food at half price. Drinks at full price. A real cut of the booking fee going directly to the venue.
The model works at 20 percent VAT. It would work better at 10. It will still run tonight, at the rate the government has not yet moved, on the quiet tables that cost the same whether or not they fill.
The Budget gets 27 days to decide whether the kitchen rate moves the way the household electricity rate moved this morning. The kitchen opens tonight either way.