Supermac’s chief Pat McDonagh wants the Government to reinstate the reduced rate of VAT for food businesses as distinct from hospitality in general.
He said the industry was struggling to deal with a jump in operating costs linked to changes in employment law, including increases in the national minimum wage, and higher energy bills.
Mr McDonagh cited figures from the Restaurants Association of Ireland (RAI), which indicate that 270 restaurant and food-led businesses had been forced to close this year in the face of rising costs.
“If you add up all the additional costs, margins (in the typical hospitality business) are down 12-15 per cent,” he said. “What do you do to control that? You either cut back on labour or put up prices. But you can’t put up prices to cover all your costs or you will become uncompetitive.”
Mr McDonagh, who also owns and operates the SÓ hotels group, said the cost spike had coincided with a contraction in disposable income on the consumer side “and that’s because the cost of living has gone so high”.
“People are cutting back on their spend,” he said.
Mr McDonagh said VAT was the most efficient way to alleviate the pressure on businesses without depressing wages for workers. He wants the Government to use the upcoming budget to carve out food from hospitality and reintroduce the reduced 9 per cent VAT.
The cut in the VAT rate for the hospitality sector from 13.5 to 9 per cent was originally made to support the industry during the financial crisis, but was reintroduced for a period during the Covid-19 pandemic before being dropped again. The RAI has been campaigning for the lower rate to be reinstated for the industry in the coming budget.
According to the association, a typical food business with a turnover of €1 million will see its total costs increase by €97,000 this year. The single biggest driver, accounting for €37,000, relates to the increased VAT rate followed by wage inflation (€36,000); increased supplier costs (€13,500). Pension auto-enrolment, which is incoming, has been costed at €5,000.
Minister for Enterprise Peter Burke unveiled a new package of supports for small- and medium-sized businesses in May. They included increased cash supports under the existing “increased cost of business scheme” which targets businesses with commercial rates bills of up to €30,000; an increased threshold for the higher rate of employers’ PRSI; and increased energy efficiency grants. However, industry groups claim the measures do not go far enough, and many are only available to very small businesses.
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