Budget 2025: Plea for 9% VAT rate

Reading the headlines over the last few weeks is a stark reminder of the crisis which elements of the hospitality sector have already entered.

The Drinks Industry Group of Ireland (DIGI) tells us that 574 pubs have closed across Ireland in the past five years, while the Restaurant Association of Ireland (RAI) states that almost 400 restaurants/cafes have closed since the start of this year.

In the most recent update on jobs from the Central Statistics Office (CSO) for June, worryingly, the hospitality sector shows the largest drop of all economic sectors (-1.0%), at a time considered to be its traditional high season where there would be most demand for employees.

From a hotel perspective, figures released by real estate services company Cushman & Wakefield earlier this year on occupancy and average daily rate – two key metrics for success in the hotel sector – show only a slight softening relative to the first half of 2023; however like pubs and restaurants it is the costs of doing business that are most concerning.

They indicate that around 6% of Dublin’s room stock is currently under construction (around 1,700 bedrooms) and that 510 new rooms were already delivered in Dublin this year. In Cork, over 200 bedrooms are to be opened in late September on Camden Quay in the 153-bedroom Moxy Hotel and 53-bedroom Residence Inn – both Marriott brand properties. These additions will no doubt help alleviate the supply pressures in the two cities.

The crux of the problem for the hospitality sector is cost- based. Labour, food, beverage and other inputs such as energy and insurance have all put constant pressure on the sector.

Much of the increase in labour cost has been introduced by the State in of increases in the National Minimum Wage, increased statutory sick pay, parental leave changes, the introduction of an extra bank holiday, auto-enrolment for employee pensions and increased employer PRSI.

Hoteliers have ranked rising business costs as the most serious challenge facing them this year. Earlier this year, a survey by the Irish Hotels Federation (IHF) found that insurance s continued to increase and that 84% of were concerned by the impact of the cost of insurance on their business over the next 12 months.

The call for a reintroduction of a 9% VAT rate in Budget 2025 on October 1 may ultimately fall on deaf ears due to the negative publicity generated in light of the announcement of dates for the Oasis reunion concerts in Dublin and the outrage at hotel rates being charged in the city on August 16 and 17, 2025.

Hotel booking engine Booking.com warned that 96% of hotel rooms listed on their site on these dates were already gone by lunchtime on the date of the announcement, though there is availability by booking directly via accommodation providers and there are also options available in the area surrounding Dublin.

Like all sectors that yield their rates based on demand, of course there will be increases in price for high-demand dates – just as we experience and accept in the airline sector – but some of the rates complained about may simply be “holding rates” that hotels have in place on online booking engines in advance of releasing the actual price that they will charge for the night. Some of the astronomical prices quoted may also be for large suites as the hotels may have no availability in their standard room categories.

A report published earlier this year by Fáilte Ireland did find that ‘s’ were charged by hotels on nights where large concerts and events mean demand outstrips room supply, but that this was similar to cities across the world where rooms supply was under pressure for an event, whereas in cities such as Las Vegas there is little evidence of this rate being charged due to the large supply of hotel rooms on offer.

However, there is no doubt that the timing of this announcement has worked against the hospitality sector’s plea to restore the reduced VAT rate from 13.5% to 9% for food, and this in turn will have an enormous effect on the survival of restaurants, cafes and bars primarily centred around the service of food.

The hospitality sector is both labour-intensive and low-margin and therefore cost increases have a significant effect on the day-to-day business and ultimately the survival of these businesses.

ABOUT THE AUTHOR

Words Dr Donagh Davern FIHI is a former Hotel General Manager and a Lecturer in Hospitality Management at Munster Technological University.