Raising VAT rate ‘could cost 6,000 in hospitality sector’

The Restaurants Association of Ireland has warned that some 6,000 jobs could be lost in the hospitality sector if the 9 per cent VAT rate is raised by one percentage point in the budget, as has been speculated recently.

A report authored by economist Jim Power says: "It is inevitable that a 1 per cent increase would cost jobs in the sector.

“It is not beyond the bounds of possibility that up to 4 per cent of the jobs in the sector could be shed, which would equate to around 6,000 jobs, both part-time and full-time,” the report states. “Rural areas would be particularly vulnerable.”

The report, commissioned by the association, says an increase in the rate would impact on part-time workers, overtime pay and some full-time positions.

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The one percentage point increase could be the difference between “success or failure” for many operators, particularly outside Dublin, Mr Power writes.

If passed on to consumers, it “would seriously damage the competitiveness of a sector that is already coming under significant pressure from currency movements and other cost pressures”.

Brexit threats

The report notes the threats posed by Brexit, both before and after the UK's official leaving of the European Union.

“Restaurants in general will suffer if visitor numbers from the UK continue to decline due to sterling weakness,” it says, adding that those in Border areas were “particularly vulnerable”.

Mr Power noted that the euro has traded at close to 93 pence in recent weeks compared with 69 pence at the end of 2015.

Post-Brexit, it warns that a failure to retain the Common Travel Area between the Republic and the UK would put pressure on the number of tourists travelling from Britain.

“If the UK leaves the EU’s Open Skies arrangement, air travel between Ireland and the UK could be adversely affected, with negative consequences for tourism and, by implication, the restaurant sector.”

The report says tourism from North America could also be under threat from the euro’s recent gains against the dollar. Visitor numbers from the region increased by 21.6 per cent in the first half of the year.

“If dollar weakness is sustained, it poses a significant threat over the coming year.”

The 9 per cent VAT rate was introduced by the Fine Gael-Labour Party coalition in 2011 as a temporary measure to help the industry get back on its feet.

The lobby group’s report notes that employment in the sector has increased by 37,800 since 2011, equivalent to employment growth of 33 per cent.

In the first quarter of 2017, 152,200 people were employed directly in the accommodation and food services sector, accounting for 7.4 per cent of total jobs in the economy.