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VAT slashed to 5% and discounts offered for eat-in diners

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Written by: Emma Lunn
08/07/2020
The chancellor has announced a VAT cut from 20% to 5% for spends in the hospitality and tourism sectors alongside a new Eat Out To Help Out scheme.

The announcements in the mini budget are part of the government’s plan to protect jobs in the hospitality and tourism sectors.

The VAT cut will be in place for six months – from 15 July to 12 January 2021 – while the new Eat Out To Help Out scheme will run throughout August.

Sunak said the hospitality and tourism sectors had been severely impacted by the pandemic due to necessary closures to protect public health. Some 80% of hospitality firms stopped trading in April and 1.4 million hospitality workers have been furloughed – the highest proportions of any sector.

The chancellor said ensuring there is enough demand as businesses reopen is key to helping these businesses recover and have the confidence to protect jobs and rehire.

He said the two schemes will support more than 2.4 million staff at more than 150,000 businesses, helping them recover and reopen after the Covid-19 lockdown.

VAT cut

Sunak slashed the amount of VAT payable on food and drink (but not alcohol), accommodation such as hotels, and visits to attractions such as cinemas, theme parks and zoos.

The move sees VAT in these sectors reduced from 20% to 5% for six months.

Sunak says this will save households about £160 a year on average.

Eat Out To Help Out

The government’s Eat Out to Help Out discount scheme will provide a 50% reduction for sit-down meals in participating cafes, restaurants and pubs from Monday to Wednesday every week throughout August 2020.

Each diner can claim the discount up to £10 per head. Businesses will then claim the money back from the government.

The scheme was quickly dubbed a “nationalised Tastecard” on social media.

Has Sunak done enough?

Although both schemes were generally welcomed, some experts said the Government hadn’t gone far enough.

Russell Nathan, at accountancy firm HW Fisher, said: “It is vital we see the hospitality industry back up and running, and these measures announced today will provide an essential lifeline for many UK businesses.

“A temporary reduction in the VAT rate and income tax for lower earners will boost consumer demand and raise consumption, but many businesses will fear the measures announced today aren’t enough. To have a lasting impact and bring back confidence, VAT should be reduced for the hospitality sector for a minimum of two years – January isn’t enough time to create long term certainty.”

Compare the Market’s Household Financial Confidence Tracker suggested that a cut to VAT may do little to convince people to get out and spend.

Less than half (46%) of those questions said 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.

Anna McEntee, product director at Compare the Market.com, said: “While the government’s additional measures to introduce a substantial 50% ‘eat out to help out’ discount could go some way 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.”

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