Britons could make 5 million fewer journeys to pubs and restaurants because of the government’s “taxi tax”, dealing a devastating blow to the hospitality industry as it recovers from the pandemic, campaigners have warned.
Minicab firms across the UK may soon have to add VAT to their fares under new government legislation that could see the price of a journey rise by 20 per cent as people and businesses continue struggling with inflation and the cost of living crisis.
Campaigners, citing industry data, said 15 million people took a minicab trip to a pub, bar or restaurant last year. But new YouGov research showed a third (33 per cent) of people would be less likely to do so if prices increased by 20 per cent.
The research comes after the High Court ruled in October last year that taxi firms, rather than drivers, were liable for contracts with their customers, meaning they could be liable for charging VAT on fares.
Under current rules minicab companies do not pay the tax because drivers are classed as independent, self-employed contractors who do not meet the required earnings threshold of £85,000 per year.
The ruling may also affect newer companies such as ride-hailing apps Uber and Bolt as well as more traditional, independent taxi firms.
The taxi industry is calling on the government to change the law so that taxi drivers are exempt from VAT - a tax that hits poorer people harder because it takes no account of one’s ability to pay.
But it is unclear whether the government will scrap the tax, which would net the Treasury millions of pounds in additional revenue at a time when public services like the NHS are struggling.
Campaigners cited YouGov polling that found nearly 7 in 10 adults (68 per cent) were against the price hike, with more than one in four saying it made them “angry”.
Gareth Cadwallader, spokesperson for the Stop the Taxi Tax campaign, said: “Brits love their locals and our industry plays a key role in safely getting punters to and from home during a night out. The taxi tax will make this unaffordable for many, hurting an industry already struggling with millions fewer trips to the pub every year.
“The taxi tax needlessly undermines the recent support the government has given the hospitality industry. It is giving with one hand and taking away with the other.”
He added: “The government must take action now. The prime minister should see that going into an election with plans to raise the cost of punters getting a taxi home from the pub could see them losing valuable votes from everyone who loves a pint in their locals.
“He must act urgently in the interests of businesses and passengers who want to be able to afford a night out.”
Emma McClarkin OBE, CEO of the British Beer and Pubs Association, said: “Pubs are already under strain and the taxi tax will increase travel costs to the point that many will choose not to go out at all – directly impacting establishments across the country.
“Pubs are essential to communities and need government support - another tax would just further erode revenues and drive customers away. We have joined the ask for urgent action now.”
Michael Kill, CEO of the Night Time Industries Association, said: “The taxi tax is the last thing the night time industry and hospitality sector needs and only adds to the enormous pressures that businesses up and down the country face.
“It is disappointing the chancellor is dragging his heels on this. Jobs and livelihoods are at stake. We need action, not more delay.”
Jonathan Gullis, the MP for Stoke-on-Trent North, said: “It makes no sense to burden people and businesses with a needless new tax, especially in an election year. The impact on pubs, bars and restaurants – who are already struggling with inflationary pressures – and communities across the country will be very serious indeed.
“As a party, we are shooting ourselves in the foot by talking about lowering taxes at the Budget while raising them in other areas. The taxi tax is deeply un-Conservative and I urge the prime minister and chancellor to intervene urgently to back businesses in cities like Stoke-on-Trent.”
A Treasury spokesperson said: “The High Court ruling does not change the tax position, it remains the case that fares are liable to VAT at the standard rate.
“However we are considering carefully the implications of the High Court ruling including the challenges it raises, and we aim to publish a consultation shortly.”