PolicyLens

Methodology note

Cut hospitality taxes: calculation note

Assumptions behind the Cut hospitality taxes scenario. Implementation detail is incomplete, so uncertainty is explicit.

View main policy page: Cut hospitality taxes

Central fiscal result

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

Low case: +GBP 0.0bn. High case: +GBP 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 GBP 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: +GBP 1.8bn
  • Beer duty cut: +GBP 0.3bn
  • Employer NI and pub rates: +GBP 0.4bn
  • Two-child-limit welfare saving: -GBP 1.0bn
  • Administration and disputes: +GBP 0.5bn

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

Main source groups

  • S1: Reform Save Our Pubs provides the package and fiscal table.
  • S2: VAT pass-through evidence informs price, margin and consumer-benefit assumptions.
  • S3: HMRC ready-reckoners frame VAT and duty effects.
  • S4: Business-rates data frame pub relief.
  • S5: VAT literature informs pass-through caution.