Cut hospitality taxes: calculation note

Central fiscal result

+£2.0bn - Net fiscal impact in 2027-28

Low case: +£0.0bn. High case: +£8.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

• Hospitality VAT falls to 10%.
• Beer duty falls by 10%.
• Pub business rates are reduced or abolished gradually.
• Two-child-limit savings are treated as the offset.

Affected population

• Affected units are hospitality firms, pubs, consumers and larger families.
• Reform says the sector supports over 1m jobs.
• Two-child-limit families bear the fiscal offset.
• Pub landlords may capture some rates relief.

Gross impact

• Reform's table gives gross tax cuts near £2.5bn in 2027-28.
• Central case assumes offset delivery falls short.
• Low case accepts near-neutral party arithmetic.
• High case assumes weak pass-through and welfare-offset disputes.

Fiscal build-up, central case

• Hospitality VAT cut: +£1.8bn
• Beer duty cut: +£0.3bn
• Employer NI and pub rates: +£0.4bn
• Two-child-limit welfare saving: -£1.0bn
• Administration and disputes: +£0.5bn

Central net impact: +£2.0bn in 2027-28.

Behaviour and pass-through

• Low case assumes the welfare offset is implemented as Reform claims.
• Central case assumes partial pass-through and limits on welfare savings.
• High case assumes larger eligibility and weaker offset delivery.
• Consumer demand boost is not treated as self-financing.

Phasing

• 2026-27: +£0.7bn. Preparation or partial implementation.
• 2027-28: +£2.0bn. Main scenario year.
• 2028-29: +£2.2bn. Behaviour and pass-through develop.
• 2029-30: +£2.5bn. Steady-state uncertainty persists.

Main source groups

• Mirrlees and review team, "Value Added Tax and Excises in the Mirrlees Review" (IFS, 2011): Reduced VAT rates narrow the tax base and create boundary problems between favoured and unfavoured spending; supports scepticism about sector-specific VAT cuts.
• Department for Business and Trade, "Business population estimates 2025" (2025): The UK had about 5.7 million private-sector businesses in 2025, mostly small firms; sets affected firm context.
• Office for Budget Responsibility, "Economic and fiscal outlook: business rates receipts" (2026): Business rates receipts are forecast at about £34bn in 2025-26; anchors rates relief scenarios.
• Reform UK, "Save Our Pubs" (2026): Used to define the pledge wording, policy scope and implementation scenario being modelled.
• Department for Work and Pensions, "Removing the two-child limit: policy note" (2026): Used to size the affected population, baseline economic quantities and sectoral exposure.
• HM Revenue and Customs, "Direct effects of illustrative tax changes" (2026): Used to support the baseline, affected-population sizing or behavioural assumptions in the illustrative scenario.
• Benzarti, Carloni, Harju and Kosonen, "What Goes Up May Not Come Down: Asymmetric Incidence of Value-Added Taxes" (Journal of Political Economy, 2020): VAT cuts are less fully passed through to consumers than VAT increases, especially among low-margin firms; important for judging whether hospitality tax cuts lower prices or raise margins.
• Reform UK, "Our Policies" (2026): Used to define the pledge wording, policy scope and implementation scenario being modelled.