Reform's claims that hospitality tax cuts can be funded by the two-child limit don't add up, warns think tank

4th February 2026

Reform says that reinstating the two-child limit for most, but not all, families would save £2.29bn in 2026/27.

The party claims its package of tax cuts would also cost £2.29bn — making it cost neutral — with the bulk coming from a proposal to halve VAT on hospitality, which it estimates would cost £1.7bn.

However, IPPR analysis finds that even allowing for increased demand from lower prices, halving VAT would cost £5.6bn — substantially more than the £1.7bn set out in the proposals, and far more than would be saved by reinstating the two-child limit.
Responding to Nigel Farage's plan for pubs, Professor Ashwin Kumar, director of research and policy at IPPR, and a former advisor to Gordon Brown, said:

"The government was right to scrap the two-child limit, a policy which would have trapped half a million children in poverty by the end of the decade.

“Hospitality needs help, but this shouldn’t be paid for off the backs of some of the poorest in society who need this support so their children can thrive.

“This is also not a fiscally neutral plan as is claimed. The costs of halving VAT alone would be much more than the claimed £3bn saving from reinstating the two-child limit. In reality, this is an unfunded tax cut which someone will have to pay for."

Full methodology:

The proposals put forward by Reform include a range of tax cuts for the hospitality sector, including halving VAT, reducing employer National Insurance contributions, reducing beer duty, and cutting business rates. According to Reform, the largest of these tax cuts (£1.7 billion out of total costs of £2.29 billion) comes from reducing VAT for the hospitality sector. This note assesses the accuracy of the claim that halving VAT for the hospitality sector will cost £1.7 billion.

Halving VAT on the hospitality sector means reducing the rate of VAT from 20 per cent to 10 per cent, which represents an 8.3 per cent reduction in the total price. These proposals assume this price reduction will generate an increase in consumption, represented by a price elasticity of -0 6. This means that for each 1 per cent price reduction, the assumption is that demand will increase by 0 6 per cent. So, the 8.3 per cent price reduction combined with an elasticity of -0.6 implies a 5 per cent increase in demand.

Government VAT revenue from the sector will therefore see two effects: they will at least halve due to the cut in the VAT rate from 20 per cent to 10 per cent and they may increase by 5 per cent due to the increase in demand generated by the price reduction (assuming that the elasticity of -0.6 is correct). The combined effect will be a reduction in government VAT revenue of at least 47.5 per cent.

Government VAT statistics show that net VAT receipts from the hospitality sector were £11.7 billion in 2024/25. These proposals therefore imply a reduction in government VAT revenue (as measured in 2024/25) of £5.6 billion. This is substantially higher than the £1.7 billion set out in the proposals and much more than would be saved by reinstating the two-child limit.