Image caption Campaigners say that a tax cut would help the economy

Thousands of pubs and restaurants are dropping their prices by 7.5% on Wednesday in protest at current tax conditions.

The campaign, called "Tax parity day", has been organised by the lobby group of French businessman Jacques Borel.

Currently customers pay 20% VAT on food consumed in pubs and restaurants.

Campaigners say a VAT cut from 20% to the government's reduced rate of 5%, would generate an extra £1.5bn in taxes in just three years and 600,000 jobs.

However, the government disputes the figures.

"We do not accept the industry's case for a VAT rate cut for restaurants and catering," a Treasury spokesperson said.

"A 5% reduced rate on catering services is estimated to cost around £9bn to the Exchequer."

There are three rates of VAT: the standard rate of 20%, the reduced rate of 5% and the zero rate.

Most food is zero-rated but food sold in pubs and restaurants has to include a VAT charge of 20%.

Campaigners argue that this is unfair, and VAT should be cut to the reduced rate of 5% - which at the moment mainly applies to domestic energy supplies.

Employment boost?

Mr Borel, who has launched similar campaigns in France and Belgium, argues that the current VAT regime is unfair as supermarkets do not charge VAT on food because it is taken and consumed off the premises.

Speaking to BBC Radio 5 live, James Staughton, managing director of St Austell Brewery and chairman of the Independent Family Brewers of Britain, said he was taking part in the one day price reduction because he believed a tax cut could boost employment and help growth.

"We are a large industry... the hospitality sector looks after visitors. We are a seasonal business and by increasing the number of visitors (through price cuts) we will help the economy."

VAT anomalies

The companies involved say they expect to get a 10% increase in sales. Large chains such as Pizza Hut and JD Wetherspoon are taking part in the campaign.

Tim Martin, chairman of the JD Wetherspoon pub chain, told BBC Radio 5 live, "Our point is that not everyone pays VAT in the same way pubs do... supermarkets can subsidise their sales of alcohol, each pint that's sold in a pub generates far more tax than it does in a supermarket."

VAT has frequently proved controversial. Anomalies include zero-rated VAT on cold take-away food, while hot take-away food is subject to the standard rate. Nuts in their shells are similarly zero-rated, while shelled nuts are not.

Last year, the government reversed its part of its plans to impose VAT on Cornish pasties and other baked goods sold on shelves.