Lib Dems call for emergency hospitality VAT cut at Budget as families “priced out” of both keeping warm and going out

EMBARGO: 2230 11th November 2025

• Lib Dems urge the Chancellor to slash VAT by 5% for pubs, restaurants, entertainment and accommodation venues as the party says too many people have been “priced out” of even “small joys” like a restaurant meal or a family day out.
• The party is also calling for the main renewable levy to be removed from people’s energy bills, which would slash the typical bill by more than £90 a year, taking it to its second lowest level since the energy crisis began in 2022.
• The emergency £12bn support package would boost high street businesses and bring down energy bills, putting £270 back in people's pockets to spend on “occasional extras”

The Liberal Democrats are calling for an emergency 5% VAT cut for pubs, restaurants and other hospitality and entertainment businesses at the Budget, as part of a bold £12bn plan to tackle the cost of living which means that going out has become an “unaffordable luxury”.

The Liberal Democrat proposals would immediately cut VAT from 20% to 15% for hospitality, accommodation, and attractions, boosting struggling high streets and slashing prices for hard-pressed families.

This would form part of a two-pronged “cost of living and cost of doing business rescue plan,” with the party also calling on the Chancellor to reduce household energy bills by removing the current “renewables obligation” levy. This combined support package, in place until April 2027, would save a typical family around £270 over the next eighteen months.

The proposals would be funded by a new windfall tax on big banks, originally proposed by the IPPR think tank, which could raise around £30bn in total between now and 2030. Less than half of this revenue would be needed to cover the cost of the VAT cut and that of replacing the current renewables obligation levy, which would cost around £7.5bn and £4.5bn respectively over the next eighteen months.

The Liberal Democrat plans would also boost footfall in Britain’s pubs, restaurants and entertainment venues, tackling the double whammy of higher taxes and lower spending currently hammering UK food and drink venues. Recent research by More in Common has shown that nearly two in three Brits (59%) think meals out at restaurants are unaffordable for most people. Over half (51%) said nights out at the pub are out of financial reach for the average person, while 45% said the same about a trip to the cinema.

Daisy Cooper, Liberal Democrat Treasury Spokesperson and Deputy Leader, said:

“People are working with their nose to the grindstone all month and have next to nothing left over after sky-high bills and spiralling food prices.

“In years gone by people knew they could look forward to fish and chips with their family on a Friday night or a weekend trip to the cinema. Now those small joys – the ones that make life worth living – are becoming an unaffordable luxury for too many.

“High street businesses have been hammered by the jobs tax and higher business rates bills, so it’s no wonder that so many treasured pubs, restaurants and cafes are boarding up their shopfronts, taking with them vital jobs and local community spaces.

“Our plans to cut VAT on hospitality and energy bills for households would put £270 back into people’s pockets, making it more affordable to heat their home and allowing them to spend more on occasional extras.  This would help to drive economic growth, restore our high streets and give the country a much-needed morale boost.”

ENDS

Notes to Editor:

Please see polling material on page 9 of More in Common’s Britons and the Spending Review paper.

Bank windfall tax

The Liberal Democrats have previously called for a time-limited windfall tax on big commercial banks, originally proposed by the IPPR think tank. It would only target the “windfall” interest payments received by commercial banks as a result of the QE-related reserves they hold at the Bank of England. Those interest payments to the banking sector are currently funded by the taxpayer. The tax does not involve any change to the way in which the Bank of England conducts Quantitative Tightening (QT). It would expire when base rate returns to 2%, or when the QT programme concludes - both of which are expected to happen after 2030. IPPR’s proposals can be found here. The bank windfall tax would raise around £30bn in total between November 2025 and April 2030.

Emergency support package

The emergency support package proposed by the Liberal Democrats would be temporary, coming into effect immediately in November 2025 and expiring at the end of the next financial year, in April 2027. It would cost £12bn in total and would be funded by the bank windfall tax.

The package would be made up of two policies:

1. Cutting VAT on hospitality, accommodation and attractions from 20% to 15% for 17 months, as an immediate boost to high streets. According to Liberal Democrat analysis of HMRC figures provided by the Government in a written Parliamentary Question, this would cost around £7.5bn in total between November 2025 and April 2027.
2. Removing the “Renewables Obligation” (RO) levy from people’s energy bills and instead funding it through the bank windfall tax for 17 months. Based on Liberal Democrat analysis of figures published by Nesta (please see page 4 of this policy paper), this would cost £3.2bn a year, equivalent to around £4.5bn between November 2025 and April 2027. By April 2027, the Government should develop a new way of funding RO contracts, implementing Liberal Democrat proposals to move them onto the “Contracts for Difference” model.

Hospitality includes businesses such as pubs, restaurants, bars and cafes. Accommodation includes businesses such as hotels, inns, boarding houses, BnBs, caravan pitches and rented holiday homes. Attractions include businesses such as theatres, cinemas, fairs, amusement parks, concert venues, zoos and exhibitions.

Household savings

The party estimates that the two policies would save UK households an average of £270 in total between November 2025 and April 2027.

Liberal Democrats expect around 50% of the VAT cut for hospitality, accommodation and attractions to be passed on to consumers, delivering an average saving of around £135 per UK household in total between November 2025 and April 2027. 50% pass-through is in line with what happened in the accommodation and food service sector during the 2008 VAT cut [HMRC p86].

According to figures published by Nesta, removing the Renewables Obligation levy would save the typical household £94 a year, or roughly £135 between November 2025 and April 2027. The roughly 2 million households with electric storage heaters would see far greater savings in the region of £250 a year. According to Nesta, the total cost of the policy levy is £3.2bn a year, or around £4.5bn between November 2025 and April 2027. Relevant figures can be found on page 4 of this Nesta policy paper.

Reducing the typical energy bill by £94 would bring it down from £1,755 currently to £1,661 - its second lowest level since the energy crisis began in 2022 (the energy price cap briefly fell to £1,568 in July 2024).