UK restaurants slammed by Russian fish sanctions, tax hike

Already reeling from the lingering impacts of the COVID-19 pandemic and a disruption in Russian fish imports, restaurants in the United Kingdom are facing a new challenge in the form of an increase in the country’s value added tax (VAT).

On 1 April, the government raised the VAT in hospitality from 12.5 percent to 20 percent.

“In April, hospitality is faced with a cliff edge, with an increase in national insurance, an increase in the national minimum wage, and a substantial increase in business rates. This is on top of soaring energy and food costs,” Founder and Director of The Inception Group Charlie Gilkes said in the UKHospitality press release.

The government can help “ease the pain and [aid] the recovery” by keeping VAT at 12.5 percent for longer, Gikes said

“This going to be incredibly tough to bear and will massively exacerbate inflation,” he said.

The hospitality industry is estimating cost inflation at 18 percent, according to a UKHospitality press release. And recent business surveys show the U.K. hospitality industry is facing a 95 percent hike in energy bills, a 19 percent uptick in labor costs, and a 17 percent surge in food prices.

“The situation will result in double-digit price increases for consumers as operators struggle to survive,” UKHospitality said. “Raising prices at this time will wreak havoc on consumer demand, further damage an already fragile sector, and have a detrimental impact on the wider U.K. recovery, as the sector will be unable to play its full role in generating jobs, investment and tourism.”

The National Federation of Fish Friers President Andrew Crook told SeafoodSource the organization was hoping the U.K. Treasury would pause the VAT increase “with a view to reform the system.”

“Government recognizes the need for industry input on every other issue, but when it comes to taxation they don't seem to want to engage,” Crook said. "The extra 7.5 percent we are expected to find now is going to be the straw that breaks the camel's back for many of my members, and it will be when the quarter ends next time, or the quarter afterwards, where they will find they just don’t have the money in the bank to cover it.”

Exacerbating the recent pain felt by U.K. fish and chip shops is the squeeze caused by sanctions placed on Russia as a result of its invasion of Ukraine. In mid-March, the U.K. placed a 35 percent tariff hike on Russian whitefish. Around 30 to 40 percent of fillets used in fish and chip shops are of Russian origin, Crook said, and “a lot” of Russian-caught fish is used in processing and for value-added products in the U.K.

“I don’t think anyone was aware of exactly how much whitefish came from Russian vessels or expected it to be an issue if it did. The current conflict and its repercussions have certainly made the industry think about food security,” Crook said. “We are already seeing record prices for fish and oil before the full impact of the conflict is being felt, and obviously sanctions will add to our woes.”

Crook said the higher prices and limited availability of some of the British population’s fish-and-chips favorites represent a huge challenge for the industry, he is hopeful customers are encouraged to try alternative species, such as hake or coley, rather than give up on fish and chips altogether.

“The big problem historically is that consumers tend to know what they want before they order,” he said. “We have so much heritage with cod, haddock, or rock [cod] … [which are] synonymous with fish and chips. It wouldn’t be a bad thing to use more of the species we currently land domestically and export. We just would need more support from [the] government to encourage consumption of these species.”

But Crook issued a warning that the entire industry is at a tipping point, especially as a full U.S. ban on Russian seafood imports pushes prices of Norwegian and Icelandic whitefish higher in the U.K.

“We also hope the catching nations realize how important it is to have the steady market of fish and chips. We purchase a lot of fish and are reasonably steady, year in and year out. If damage is done now through not getting supply, it could change the industry forever,” he said.

A U.K. Treasury spokesperson told ITV the lower VAT rate was meant to be a temporary measure to shepherd the country through the worst impacts of the pandemic, which have now passed.

"We’ve supported hospitality jobs and businesses throughout the pandemic with our GBP 400 billion [USD 524.4 billion, EUR 477 billion] package of funding and continue to do so," the spokesperson said. "We’ve always been clear that the lower rate of VAT was a temporary measure to support businesses as they recover and thanks to the strength of our fantastic vaccine program which has enabled restrictions to be lifted and the economy to reopen, it’s right that our package of support reflects this."

Photo courtesy of National Federation of Fish Friers