A tax expert believes a cut in the rate of VAT on restaurant food could provide a boost to Lancashire’s pub trade and the flagging high street.
Thousands of pubs and restaurants took part in an event last week which saw them drop their prices by 7.5 per cent in protest at tax conditions.
The campaign, called ‘Tax parity day’, was organised by the lobby group of French businessman Jacques Borel.
Customers pay 20 per cent VAT on food consumed in pubs and restaurants, but campaigners say a VAT cut to the government’s reduced rate of five per cent, would generate an extra £1.5bn in taxes in just three years and 600,000 jobs.
The government disputes the figures claiming it would cost the Treasury £9bn.
Colin Corder, a VAT manager at Moore and Smalley, believes it would boost the economy and increase tax yields in the long-run.
He said: “The restaurant and take-away sector is suffering from rapid inflation in the price of food ingredients.
“The sector employs hundreds of thousands of people and, just as importantly, adds life and vibrancy to an otherwise flagging high street.
“Many pubs are now more food than drink-orientated and a cut in VAT on food sales may help reduce the closure rates and allow them to become the centre of the community again.”
“Although a cut in the VAT rate would have an initial impact on tax collection, it would give the industry a boost and give a feel good factor resulting in an increase in other tax yields.”
There are three rates of VAT: the standard rate of 20 per cent, the reduced rate of five per cent and the zero rate. Most food is zero-rated but food sold in pubs and restaurants has to include a VAT charge of 20 per cent.
Campaigners argue that this is unfair, and VAT should be cut to the reduced rate of five per cent, which at the moment mainly applies to domestic energy supplies.
Companies involved in last week’s tax parity day said they expected to get a 10 per cent increase in sales and large chains such as Pizza Hut and JD Wetherspoon took part in the campaign.