Sunak announces VAT cut for hospitality industry

UK: Chancellor Rishi Sunak has revealed a six-month cut in VAT for the hospitality and tourism sectors, which equates to a $4 billion boost for the industry.

Announced in the Chancellor’s mini-Budget speech, Sunak has pledged to get pubs and restaurants “bustling again” as he unveiled measures to kickstart the economy.

A cut VAT on food, accommodation and attractions will be reduced from 20 per cent to five per cent, launching 15 July until 12 January.

A 50 per cent discount voucher on meals at participating restaurants during the month of August will also be issued to every Briton as part of the government’s ‘Eat Out, Help Out’ initiative. The discount will go up to £10 per head, and will apply Monday to Wednesday.

Sunak also pledged to “protect, support and create jobs”, stating that a £1000 job retention bonus will be paid to businesses for every furloughed worker that is brought back.

If all furloughed employees in the UK are to return to work, the policy would cost £9 billion.

Other announcements made include:

  • A £2 billion Kickstart Scheme, where the fund will be used to create government-subsidised jobs for unemployed young people. Some £111 million will be invested to triple the number of traineeships, and £2000  will be paid to businesses for every new apprentice in the next six months (£1500 for those aged over 25).
  • A £3 billion package of green investment to help create jobs, with some £1 billion set aside to make public sector buildings greener.
  • A temporary cut on stamp duty for homebuyers, who will be exempt from paying tax for the first £500,000 of any property price.

Russell Gardner, head of real estate, hospitality and construction at Ernst & Young LLP, said: “The cut in VAT will be widely welcomed in particular, although it will be interesting to see to what degree the reduction is passed onto consumers. The ‘eat out to help out’ voucher scheme is particularly innovative and represents a unique direct intervention to stimulate consumer demand in the hospitality sector. However, we note continuing concerns around the level of demand during the “back to work” months of September and October, when furloughing support will be being phased out.

He added: “Before COVID-19, the construction industry had welcomed the Chancellor’s commitment to get Britain building and after the enforced pause in activity, it is desperate to make up for lost time. Today’s announcement of further commitments to projects across the country and upping the ante on green building will be a further boost to an industry that has a crucial role to play in the country’s economic recovery and long-term prosperity.”

Jane Longhurst, chief executive of the Meetings Industry Association (mia) said: “[We] welcome the Chancellor’s support to the hospitality sector in today’s summer economic update by reducing VAT to five per cent on food, accommodation and attractions, as part of the government’s plans to kickstart the UK economy.

“However, as once again the events sector that contributes £70billion to the economy supporting over 700,000 highly skilled jobs wasn’t noted specifically, we await further clarification as to how or whether the gesture will be extended to business meetings and events.

“While we recognise that the government’s furlough scheme cannot be extended indefinitely for all, it was extremely disappointing to hear that there will be no exceptions – particularly for those sectors in most need. Instead it will finish for all on 31 October, which is another blow for our sector.

She continued: “The one glimmer of hope for business meetings and events is the positive news that employers who bring their employees back from furlough, will be rewarded by the new job retention policy. The £1,000 bonus may help delay some inevitable redundancies, allowing the sector a chance to get a clearer idea of how well business is going to recover, before implementing cuts.”

Chris Denning, partner at accounting firm MHA MacIntyre Hudson, said: “The time period of the stamp duty relief announced by the Chancellor, from now until 31 March 2021, is relatively short. It gives little opportunity for house builders to use the reduction to inform strategic decisions on construction plans beyond the next nine months. The current fall in house prices may also encourage people to sit tight until the market recovers and there is huge uncertainty around job security. This policy will likely need extending in order to have real economic impact.”

Michael Buckworth, manning director of law firm Buckworth, said: “Further financial assistance for the struggling hospitality sector is long overdue. Our research project found that over a quarter of SMEs in the catering and leisure sector didn’t believe that the Government’s support schemes were enough to help stave off insolvency. While the VAT cut announced by the Chancellor today is welcome, the Government must also address the public’s fear of returning to pre-COVID-19 life. The Government has spent three months telling us to stay at home to save lives: so, it isn’t surprising that the public is worried about leaving their homes or going to the pub and eating out. As well as financial support, the hospitality sector now needs clear, coherent messaging from Westminster that a return to normal is safe.”