VAT cut to boost restaurants and attractions
Government urge the nation to ‘eat out to help out’ in the wake of COVID-19
VAT on food from restaurants, pubs, bars and cafés is being slashed in a bid to woo consumers back to eating out. As part of the latest economic update, Chancellor Rishi Sunak announced a cut in VAT on hospitality and leisure services from 20% to just 5% in a bid to boost consumer spending.
The temporary cut, which will start on 15 July and run until 12 January 2021, will also apply to accommodation and attractions like cinemas and zoos.
And in a further bid to tempt consumers, the government is entitling every diner to a 50% discount of up to £10 per head at participating restaurants, cafés and pubs under its new Eat Out to Help Out scheme. This will run throughout August across the UK.
The hospitality sector has been badly hit by the coronavirus pandemic. At its lowest point, spending on restaurants, travel and entertainment fell by around 80%.
VAT has been cut in past financial crises to stimulate the economy: after the 2008 financial crash it was temporarily cut from 17.5% to 15%.
But this time, a cut in VAT may not be enough to get people out and onto the high street again.
Anna McEntee, product director at comparethemarket.com, said:
“A cut to VAT may be welcomed by sectors of the economy which have suffered the most during lockdown, but our Household Financial Confidence Tracker suggests that a cut to VAT may do little to convince people to get out and spend. 46% said that slashing VAT would incentivise them to visit shops in person, but 52% said it would make no difference. Among those who are already unwilling to visit newly opened shops, only a third (33%) thought that cutting VAT might change their mind.
“While the government’s additional measures to introduce a substantial 50% ‘eat out to help out’ discount could go some way to entice people out of their homes and stimulate the restaurant sector, concerns around social distancing are still predicted to significantly impact areas such as retail.
“Increased comfort with shopping online suggests it will take some time before footfall picks up again and for retailers to start to see the benefits of an easing lockdown. Our research shows that 59% of people do not plan to go to these shops in person. Today’s tax cut alongside the government’s rallying cry of “get out and shop”, looks easier said than done.”