Coalition under growing last-minute pressure on hospitality cost of living measures

The Coalition is coming under increased pressure in relation to the hospitality VAT rate, as a growing number of backbenchers support an extension of cost of living measures.

The 9 per cent VAT rate for the industry is due to expire at the end of the month, when it will revert to 13.5 per cent. It comes amid a warning from Taoiseach Leo Varadkar that expectations should be “tempered” ahead of the next round of Cost-of-Living supports.

A number of industry representatives from pubs, hotels and restaurants met members of the Fianna Fáil parliamentary party on Wednesday. Speaking afterwards, three sources said there was an overwhelming majority in favour of retaining the VAT rate at 9 per cent, further heaping pressure on Government.

One source said the Fianna Fáil parliamentary party meeting was “all about” retaining the VAT rate. Another said they believed the rate may be kept the same in the immediate term, but that the rate would be tapered back to its original figure over a set amount of time. They cautioned, however, that no final decision has been made yet.

Minister for Finance Michael McGrath told the meeting that the priority is to “try and target those people who are genuinely struggling and those facing really high bills”, other elements are being examined.

A number of backbenchers - including Christopher O’Sullivan TD, Senators Niall Blaney, Pat Casey, Ollie Crowe - raised the extension of the 9 per cent vat rate for hospitality, but it was acknowledged the half a billion-euro cost of continuing the reduction could be better focused on supports for households and schemes such as TEBESS. It was also noted it would be challenging to differentiate between hotels in Dublin and those in rural areas that are still struggling.

A specific cost of living meeting is due to be held on Thursday, and will be attended by the Minister for Finance Michael McGrath, the Minister for Public Expenditure Paschal Donohoe, the three party leaders and the Minister for Social Protection Heather Humphreys.

[ From electricity credits to child benefit: What cost-of-living measures will be renewed? ]

Measures under consideration for households include a possible extension of the fuel allowance scheme and an extra €200 electricity credit for households.

As well as the Fianna Fáil briefing, the issue was discussed at the meeting of the Fine Gael parliamentary party on Wednesday evening.

Senator Tim Lombard, Wexford TD Paul Kehoe and Kerry TD Brendan Griffin were among those who made contributions on the nine per cent VAT rate for hospitality, with Mr Kehoe saying it should be kept for restaurants.

The Taoiseach told his party meeting that expectations needed to be “tempered” ahead of next Tuesday’s government meeting on cost of living supports - and that the interventions would not be on the scale of a budget or mini-budget. He told the group that the government had to stay within financial limits set out last September.

It comes as Mr Donohoe gave his strongest indication yet that the continuation of targeted and universal cost of living supports will be sanctioned by the Government.

Speaking to reporters in Dublin on Wednesday, Mr Donohoe said the high level of inflation experienced last year “should now be behind us” but that “inflation will still be high for this year and it will still have an effect on living standards”.

A Cabinet meeting will be held next Tuesday to decide on the final package of supports. It is understood that the Government meeting on Thursday, before this, will see the finance ministers give presentations on the public finances and the options available.

The Government announced universal energy credits amounting to €600 per household in Budget 2023. The last €200 tranche of this is due to be transferred on to utility bills in March. While wholesale energy prices have dropped, this has yet to translate into a reduction in household bills, leading to calls for an additional €200 credit to be applied in May.

“I am really aware of the challenges so many families, so many citizens are facing at the moment. While inflation is coming down in 2023 it is still at a level that it is having a real impact on living standards particularly the living standards of our most vulnerable,” Mr Donohoe said, adding that the Coalition would have to decide on appropriate future supports for households.

The Minister said he could “see some positive signs regarding inflation beginning to change, regarding growth holding up” but that for many prices were still high and the cost of living was unaffordable.

“What universal measures bring are the ability to help everybody, what tailored measures bring is the ability to help some more, but they each have benefits and drawbacks and the Government will in the next few days make your decision on that.”

However, he said the supports could not continue indefinitely. “We put in place in October, November and December of last year a massive amount of support for householders and businesses because it was needed and because we needed to support our country at a time when energy prices were so high.

“We will not be able to maintain that level of support across an entire year. That will ultimately become unaffordable and while we are grappling with risks that are beyond our control, such as the rising price of energy, we don’t want to create risks of our own here in Ireland if we end up putting in place measures that are ultimately unaffordable or if we add to our inflationary challenge by decisions we make at home.”

Meanwhile, Taoiseach Leo Varadkar told the Dáil on Wednesday there will be no requirement for a “mini budget” between now and the next Budget.

Mr Varadkar said Ministers will meet this week with a view to making a decision at Cabinet next Tuesday in relation to the cost of living financial supports.

“We won’t be having a mini budget,” Mr Varadkar told the Dáil during Leaders’ Questions. “That’s not necessary.”