1st April the Chancellor raised the VAT rate for hospitality from 12.5% to 20%. This article explains why we’ve had to raise our prices as a result. This issue was also covered by the BBC (in which we featured! – and you can see the story here: https://www.bbc.co.uk/news/business-60925823).
As with all hospitality businesses, the VAT increase back to 20% couldn’t really have come at a more challenging time. It means that we’re seeing intense pressure from both sides; from increased costs that are rising in every area but now also having to pay a larger proportion of tax on our revenues.
Whilst the lower rate of VAT was designed to help with restrictions placed on our industry due to Coronavirus, more recently it has also been helping protect our menu prices from rising alongside our costs. As a bakery, some of these increased costs have been tough: some butters going up 29% and eggs 37% in the last few months are just two examples. And our suppliers tell us it is only likely to get worse.
Not only that, but we are raising the wages of team pretty much across the board, who like everyone in the country, are seeing their everyday budgets go up too.
We had really hoped the Chancellor would relook at this rise in his Spring Statement. The reality is that most European countries have a permanently reduced rate of VAT for hospitality and even those that don’t, like Germany, have extended the reduction until December. It feels like a missed opportunity by the Government to help accelerate our recovery from Coronavirus whilst not fuelling price increases for anyone that enjoys time in restaurants, coffee shops and pubs.
At Heidi we will respond to this tax increase in a number of ways. Firstly it’s inevitable that we will have to raise some prices and we’re trying to communicate these to our customers in the most open way we can.
However, as a bakery that makes everything from scratch, we can also do some other things. We’ll continue to work with our suppliers to push for lower costs, and where that’s not possible, we’ll pivot more to bakery products that use ingredients that are more widely available. For example we’re already finding our croissant-based recipes to be less impacted by price rises than our brioche-based ones and so we’ve got some really talented bakers working hard to find that perfect inflation-busting pastry!
Finally, it’s also worth remembering that this VAT increase disproportionately affects high street eating, with many products not being impacted by the VAT rise if they are sold for consumption off the premises. We’ll therefore be looking at increasing these types of sales, whether it’s more takeaway through our app or even looking at selling more online.
This does lead to one major question, which is what value the Government places in hospitality establishments and our role in today’s society. We have to charge customers 20% more tax on many of the same product lines sold by the supermarket simply because we also provide a table and plate, or serve them hot. Isn’t it time to revisit hospitality VAT and bring it in line with our counterparts across the Channel?