NI hospitality leaders warn VAT cuts won't translate to lower customer prices

Northern Ireland's hospitality sector is pressing the UK government for a value-added tax reduction to match the lower rates available across the border in the Republic of Ireland, but industry leaders have cautioned that any such cut would not necessarily result in cheaper prices for consumers.

The 20% VAT rate applied to hospitality in Northern Ireland and the rest of the UK stands in sharp contrast to the Republic's position. As of 1 July 2026, Ireland introduced a 9% VAT rate for food services and catering, while accommodation remains at 13.5%. This disparity has become a significant competitive disadvantage for businesses operating in border regions.

Hospitality leaders argue that the VAT differential, combined with other rising costs, threatens the viability of their operations. The industry contends that a VAT cut is essential for survival, particularly for establishments in areas where customers can easily cross into the Republic to find lower prices.

How has the cost gap affected Northern Ireland businesses?

Michael Cadden, chair of Hospitality Ulster and operator of the Lusty Beg Island Resort in Fermanagh, described the situation facing the sector.

We are currently victims of our geography.

He explained that while VAT differentials have long existed between the two jurisdictions, Northern Ireland businesses have lost their ability to absorb this gap due to compounding pressures.

That's been eroded through increases in the National Living Wage, increases in National Insurance contributions and huge increases in the supply chain.

Selina Horshi, Managing Director of the White Horse Hotel in Londonderry, quantified the impact in concrete terms. For every £100 in sales, her business pays approximately £5 more in VAT than an equivalent establishment across the border.

That quickly adds up to thousands of pounds in a business each year that we simply don't have.

She noted that this cost disadvantage has directly affected her ability to compete for business from tour operators, with demand from that sector declining in July because she could not offer sufficiently competitive pricing.

Would a VAT cut lower prices for customers?

Industry representatives have been candid about the reality of how a VAT reduction would be deployed. Horshi stated that it would be

disingenuous

to suggest that the entire benefit of a VAT cut would be passed through to consumers. Instead, she outlined how the relief would function in practice:

If I had the ability to lower my prices to retain that, I could do a percentage of my business at that lower rate without losing the margin.

This approach would allow her to offer more competitive rates to tour operators and other bulk purchasers without sacrificing profitability across her entire operation.

Horshi characterised a full pass-through of VAT savings to consumers as

funding a sale

, indicating that businesses would instead use the relief to strengthen their financial position and invest in competitiveness rather than reduce prices across the board.

What evidence exists from Ireland's experience?

Adrian Cummins, chief executive of the Restaurants Association of Ireland, presented evidence to MPs regarding the effects of Ireland's VAT reductions. He noted that lower VAT rates in the Republic have helped protect businesses and jobs during periods of economic stress.

Ireland's approach to hospitality VAT has been variable. Following the 2008 financial crisis, the government introduced an emergency VAT cut from 13.5% to 9% in 2011 to support tourism. This rate was restored to 13.5% in 2018, reduced again to 9% during the pandemic, and returned to 13.5% in September 2023. Most recently, the government reinstated the 9% rate on food service and hot takeaways in July 2026 following intensive industry lobbying. The measure was estimated to cost €232m in 2026 and €681m in a full year.

Cummins characterised the recent Irish cut as a measure aimed at business

viability

rather than as a consumer initiative. The reduction has proven politically contentious, with critics arguing it is poorly targeted and lacks sufficient evidence of necessity. The 9% rate applies to most food and certain drinks sold in restaurants, cafés, hotels, bars, takeaways and other catering settings, but not soft drinks or alcohol, which remain at 23%.

What would a Northern Ireland VAT cut cost?

Gareth Hetherington, director of the Ulster University Economic Policy Centre, suggested that a pilot scheme for a VAT cut in Northern Ireland could be justified. He emphasised that the most critical measure of success would be whether the tax cut stimulated increased investment in the sector. Consequently, any pilot programme would need to operate for at least four or five years to generate meaningful data.

Hetherington provided a preliminary estimate that a VAT cut in Northern Ireland would initially cost the Treasury between £225m and £250m annually. This substantial fiscal commitment has been a key factor in the UK government's consistent rejection of the industry's request, with ministers arguing that such a cut would be poorly targeted and prohibitively expensive.

The UK government's position contrasts with its approach to other hospitality support measures. The UK had already used a temporary 5% VAT rate for certain family-focused hospitality and tourism supplies in Northern Ireland from 25 June 2026 until 1 September 2026, though this time-limited scheme has now concluded.

What happens next?

The hospitality sector's case for a permanent VAT reduction remains under consideration, though the government has shown no indication of reversing its position. Meanwhile, Ireland's reduced hospitality VAT regime is set to remain in force until 31 December 2030, potentially extending the competitive disadvantage facing Northern Ireland businesses for years to come.