Chancellor’s £4.1 bn takeaway will boost consumption and protect 2 million jobs
VAT in restaurants, hotels and cinemas will be cut to 5 per cent from 20 per cent in an effort to protect more than two million jobs.
Rishi Sunak announced the cut to give the hospitality and leisure sector confidence that if they reopen, the “demand will be there”.
From next Wednesday until Jan 12, Value Added Tax for food, accommodation and attractions will be charged at 5 per cent, a measure that will cost the Treasury £4.1 billion, according to estimates.
It goes further than Labour’s emergency VAT cut in the wake of the financial crisis, when it was reduced to 15 per cent from 17.5.
The Chancellor said in his summer statement: “This is a £4billion catalyst for the hospitality and tourism sectors, benefiting over 150,000 businesses, and consumers everywhere – all helping to protect 2.4 million jobs.”
The cut applies to sales of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises.
Mr Sunak told MPS the public had been “cautious about going out” and acknowledged how hard businesses had worked to safely reopen after lockdown restrictions were eased.
He said: “We need to give these businesses the confidence to know that if they open up, invest in making their premises safe and protect jobs, demand will be there, and be there quickly.”
The Chancellor said that the tax cut would apply to eat-in or hot takeaway food from restaurants, cafés and pubs, accommodation in hotels, B&BS, campsites and caravan sites, as well as cinemas, theme parks and zoos.
Further guidance on the VAT relief would be published by HM Revenue and Customs in the coming days.
VAT was introduced in the UK in 1973 at a rate of 10 per cent on most goods. It has since grown in both scale and complexity.
The emergency cut introduced by Alistair Darling, Labour’s chancellor, in the wake of the financial crisis, reduced the rate by 2.5 per cent between Dec 1, 2008, and Dec 1, 2009. Three years later, George Osborne, the chancellor under David Cameron’s coalition government, hiked it five points to 20 per cent as part of the country’s austerity measures.
The Resolution Foundation, the independent economic think tank, said Mr Sunak’s cut was a “substantial intervention” that would “have a dual effect of boosting consumption in those sectors when it reduces prices, and giving cash to struggling businesses when it does not.”
Yesterday, Helen Miller, the deputy director of the Institute for Fiscal Studies, said: “The tourism and hospitality sectors have been particularly badly affected by the crisis. Cutting VAT and discounting restaurant meals will increase output in these sectors if businesses have the capacity to serve more customers despite social distancing requirements.”
The tax cut was welcomed by the hospitality industry.
Kate Nicholls, the chief executive of UK Hospitality, the industry body, said: “This significant VAT cut, heightened ability to retain staff and incentives for consumers to eat out together, amount to a huge bonus. We hope that the UK public rightly sees it as sign that we are ready to welcome them back safely. The future of many businesses and jobs depends on it.”
She added: “It is reassuring that the Chancellor singled out hospitality and tourism as a vital part of the UKS economy and a pillar of social life around the UK.”
Dr Adam Marshall, the director general of the British Chambers of Commerce, said: “The VAT cut will help firms in the hospitality and tourism sectors working hard to restart after many months of lost revenue.”
Mr Sunak’s decision to reduce VAT comes on top of previous reliefs the Government has already introduced in response to Covid-19. More than 400,000 businesses have been able to defer VAT payment until next March.